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I have experience with Short
Sales -
a
transaction in which the homeowner’s mortgage lender agrees to let the
owner sell the house for less than is owed. My experience involves properly negotiating the
process and lenders agreeing to accept current conditions, regardless of
the amount owed. The
Mortgage Debt Relief Act of 2007 generally allows taxpayers to
exclude income from the discharge of debt on their principal residence
in calendar years 2007 through 2012. These transactions usually
take 2-3-4 months to complete after a Sales Contract is signed,
therefore, if only a few to several weeks remain before the foreclosure
sale then it is too late unless lienholder agrees or is included in a
Chapter 13 bankruptcy plan.
But selling your home may not be right for you and there are other
alternatives ..... see below. |
Alternatives to Foreclosure
I am
a real estate agent. The only service that I am qualified to give
is real estate brokerage. I am not an attorney or an accountant.
I am licensed to advise and represent to the public my expertise in constructing
real estate transactions using state promulgated forms; and nothing more. I am
not qualified to recommend a correct or appropriate decision about your specific
fact situation. My comments are for educational purposes only. You should
always seek the advice of a competent attorney for answers to any legal question
you may have and a tax professional for tax questions.
Do Nothing - For some people, allowing the foreclosure to happen is the
best alternative. It's a long process and during this process one can live
in their house rent free and accumulate cash and get prepared to transition into
different housing. My observations have been that this process takes
several months and involves many notifications. It will not be a surprise
but at some point, a Writ of Possession is obtained that will allow the Sheriff
to remove occupants and belongings from the property. Lienholders can then
sue for the remaining deficiency balance. But for many people, this is not
so bad. Under Texas law, much of one's property is exempt from creditor
action. Some are judgment proof. The damage to one's credit score is
generally considered to be the greatest with foreclosure; greater than bankruptcy.
Payoff/Refinance - Some homeowners have untapped resources in the family
who are only too happy to help by paying off the mortgage and hold the note,
thus allowing the homeowner to then make reasonable payments to that person or
family business. Others can visit a mortgage broker and qualify for
refinancing.
Reinstatement - Reinstatement is paying off the entire default amount
plus interest, attorneys' fees, late fees, taxes, HOA fees, missed payments and
other fees. Here again, there may be a relative or family business that
would loan or give the amount needed to bring the loan current. Some
people have assets that can be sold or used to secure loans to cover the default
amount. Yard sales have provided such funds for some.
Partial Claim- A partial claim is a second loan from the lender for the
amount of the arrearage plus accured interest and costs. A homeowner would
apply for this through the customer service representative for their servicing
lender. Qualifying would depend upon creditworthiness.
Deed-In-Lieu- A Deed-In-Lieu of Foreclosure is a legal document in which
the homeowners merely deed the property back to the lender instead of the lender
going through the foreclosure. A Deed-In-Lieu has become
increasingly less common and is usually used in cases with substantial equity or
with Chapter 7 bankruptcy. For the borrower, a Deed-In-Lieu may be far
worse than a bankruptcy on their credit worthiness for a new mortgage loan in
the future and may have the same ultimate consequences as a foreclosure.
For those of advanced age and plans to never purchase a home in the future then
the impact may be of no consequence to them.
Bankruptcy Chapter 7- The filing instantly halts all creditor
action. The case will be administered and creditor's liens will lead to
surrender of collateral. Bankruptcy Chapter 7 is a good solution for a
homeowner who has a lot of other debt and is in great financial trouble.
For those who quality it offers general forgiveness of their debts.
Bankruptcy Chapter 13- Also called debtor reorganization and a wage
earner plan, the plan involves determining the debtors income and allowed
expenses. Creditors and the debtor argue before the court and negotiate a
plan to be approved by the court. If the court permits, a Chapter 13 Plan
can be used to stall a pending foreclosure; halting the foreclosure sale at the
moment of filing and providing for the property to be sold in short sale,
consent obtained to employ the agents to work the deal, and if the lender does
not object, the Plan is then confirmed and the sale is allowed.
Selling the Home- If there is enough equity in the home to sell the
property for what is owed, plus selling costs then one option is to sell the
home. This will protect the credit of the homeowner. If there is not
enough equity then a sale of the home is still possible, with the mortgage
lender taking a reduction in the amount that they will receive. This is
called a short sale, pre-foreclosure sale, short payoff, or discount payoff
sale.
Loan Modification- This alternative is available for some homeowners who
are behind in their payments, typically 2-5 payments. Another usual
requirement is that the Notice of Default (NOD) has not yet been filed in the
borrower's county but it still may be possible to complete a loan modification.
The goal is to reduce the payment to an amount that the borrower will be able to
pay without fail from that point forward. Financial information is
submitted to the servicing lender where is is checked for the necessary elements
and then sent to the investor for approval.
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