7 Ways to Stop Foreclosure

There are many ways that a homeowner can STOP foreclosure.
Below is a list of your options with some brief explanations.

1. Loan Workout

A loan workout is when you negotiate with your lender any plan that will benefit both you and the lender when you are delinquent or in default. This is a broad term used in the industry to cover all available options for the homeowner. These options can include: loan modifications, repayment plans, short sales and forbearance plans.

2. Loan Modification

This is when the lender modifies your current mortgage in order to work with you and make your mortgage more affordable. In the past, loan modification was only used when a borrower was delinquent but now it is being used before someone is delinquent with their payments.

3. Forbearance

This is used most of the time when a notice of Default has been filed. In forbearance, you are allowed to delay or reduce payments for a short period providing that another payment solution will be used to bring your account to a current status. Your lender, if in agreement, will then temporarily cease legal actions.

4. Short Sale

This is used when all negotiations for a loan workout have failed and you are upside down on your mortgage meaning you owe more than it’s worth. The lender basically agrees to cooperate in the sale and take a financial loss. You place the home up for sale and all offers are presented to the bank. Unlike a traditional sale, when the homeowner decides to accept a purchase offer, the bank controls the negotiations and the homeowner has no say in the process. This is a last ditch effort to save someone’s credit from a foreclosure filing.

5. Foreclosure Bail Out Loan

This is a brand new loan where the defaulted mortgage is paid off. The new loan is generally hard money and it is common for interest rates to approach 10-15%. Points can also be as high as 5 and the terms are usually short. In addition, within the 5 year range, a balloon payment will be due for the remaining balance. In order to qualify for the bail out loan, you must have sufficient equity. Hard money lenders are looking for: 65-75% max loan to value ratio, a decent equity cushion and the ability to repay as in a traditional mortgage.

6. Deed-in-lieu

This is a deed instrument where the mortgagor (ie., the borrower) conveys all interest in a real property to the mortgagee (ie., the lender) to satisfy a loan that is in default to avoid foreclosure proceeding. The deed-in-lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him or her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms that he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of repossession and additional advantages if the borrower subsequently files for bankruptcy. In order to be considered a deed-in-lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Generally, the lender will not proceed with a deed-in-lieu of foreclosure if the current market value exceeds the indebtedness of the borrower. Due to the requirement that the instrument be voluntary, lenders will often not act upon a deed-in-lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states the offer to enter into negotiations. A voluntary action will enact the parole evidence rule and protect the lender from a possible subsequent claim the lender acted in bad faith or pressured the borrower in to settlement. Both sides may then proceed with settlement negotiations.

Neither the borrower nor the lender is obligated to proceed with a
deed in lieu of foreclosure until a final agreement is reached.

7. Chapter 13 Bankruptcy

Bankruptcy is primarily used to stop the foreclosure of your home. In order to qualify for bankruptcy, you must provide a history of steady income. The bankruptcy petition is filed at the courthouse before the sale date of your property. After filing bankruptcy, you will propose a plan to repay the amount you are delinquent on your mortgage. What many lawyers and people do not know is that a forced loan modification can be sanctioned by the courts if it is proved that the borrower cannot afford the current payments. The concept is similar to debt consolidation, but it permits you, the consumer (s), to pay unsecured debt down without accruing interest (student loans being the exception). Under a typical plan, you make payments to court appointed trustee for 3-5 years determined by the amount of debt that you have and your ability to repay. You can always refinance or sell you home while under Chapter 13 and pay off the bankruptcy.

The Chapter 13 stops the foreclosure immediately.