Know Your Options
If you are a homeowner facing a foreclosure, you have options to defend against the foreclosure. Call us to learn more. Options include:
- Work out a deal with the lender. A bank is required to engage in loss mitigation with the homeowner to try to work out the foreclosure. This means the bank must determine if there are other payment arrangements available to help a homeowner remain in their home.
- A loan modification is the most common loss mitigation tool. A loan can be modified by reducing the monthly payment, reducing interest, extending the term, or a combination of the above. Every bank is required to engage in loss mitigation and work with the homeowner. It is important that a homeowner stay in communication with the lender to ensure that loss mitigation efforts are taking place. It is also crucial that all required financial information be provided to the bank in order for it to review a homeowner.
- If the loan is not modified then the lender may offer a repayment plan to help a homeowner catch up on back payments without changing the terms of the loan.
- Another option is a forbearance agreement in which payments are temporarily suspended or reduced to allow time to deal with the financial situation. Forbearance agreements can often be used for those individuals dealing with unemployment. Loss of job does not mean foreclosure is inevitable.
- Another loss mitigation tool is simply to pay off the arrearage (missed payments) in its entirety to bring the loan current. The obvious challenge in this situation is that most homeowners are not in a financial position to put forth that amount of money. While the amount required to bring the mortgage current can be negotiated, a majority of the amount sought by the bank will be required in order to execute this option. Additional fees and costs can be subject to negotiation.
- Defend the case. A defense to a foreclosure can buy you time, and in some cases allow you to keep the home. There can be various defenses available depending upon the facts of your case.
- Make sure the lender owns the loan and provides documentation to that effect. In many mortgage transactions, the loan is sold a number of times to different banks. At the time of foreclosure, the bank foreclosing on your loan must be able to show that it is the proper “owner” of that loan. The assignment of the loan from bank to bank must be documented appropriately, and you have a right to see the proper paper assignments.
- Ensure that all payments have been applied correctly. On occasion, a foreclosure action is filed against a homeowner who has not in fact missed any payments. The lender may have misapplied the mortgage payments and in these cases it becomes crucial to provide to the bank proof of payments in order stop the foreclosure and resume regular monthly payments.
- Verify that all legally mandated procedures have been followed. In many states, the foreclosure process is managed through the court system, and the rules of civil procedure govern the foreclosure process. There are deadlines and notice requirements that must be met in order for a foreclosure to proceed forward to sheriff’s sale. These rules also govern applicable homeowner/defendant deadlines that must be followed should a homeowner wish to litigate the foreclosure.
- Mediate the case face-to-face with the lender. Mediation can be a great tool that allows negotiations to take place with the help of a neutral third party. A homeowner may be able to avoid costly litigation fees and resolve the matter more efficiently.
- Many jurisdictions offer mediation programs to help lenders and consumers resolve the foreclosure without going through litigation and sheriff’s sale. A forum is provided for the homeowner to meet face-to-face with a bank representative or their counsel in an effort to discuss alternatives to foreclosure. These programs provide a good opportunity for the homeowner to delay the foreclosure proceedings in an effort to engage in loss mitigation with the lender.
- Graceful exit of the home. In some instances, home retention is no longer an option for a homeowner. The payments may no longer be affordable (even if reduced) and a homeowner must leave the home.
- Instead of going to a sheriff’s sale, the homeowner may try to sell the property for an amount less than what is owed. This is called a short sale. The bank avoids the cost and headache of a sheriff’s sale and the homeowner is able to walk away from the home with less damage to their credit.
- Another option is a deed in lieu of foreclosure. The homeowner simply transfers title of the home to the bank, and in return, the homeowner is released from the mortgage obligation. This option is also less damaging to the homeowner’s credit and saves the time and expense of a sheriff’s sale.
- Lastly, the bank in some circumstances will offer a “cash for keys” deal in which the homeowner is given a lump sum payment in exchange for exiting the property. This can happy both prior to and after sheriff’s sale. The amount varies with each homeowner.