Exploring Further Remedies To Foreclosure

Your Options For Dealing With Foreclosure

There are certain remedies that homeowners facing foreclosure may be able to negotiate with their lender, but they are far less common today than they were before because they require the lender to halt the foreclosure process in favor of agreeing to a new arrangement. The most common types of remedies that may result are as follows…

Loan Modifications

A loan modification is when a lender evaluates your case to determine whether they will reduce your payment or interest rate so that it is more affordable to you. Unfortunately, lenders would typically only do this if a property has no equity. (Because of this, loan modifications were incredibly common in 2009 after the housing market crash, but are now quite rare.)

If a loan modification is granted, your lender would give you a trial period after reducing your payment or interest rate during which time you must pay as proposed for three months. If you complete the trial period successfully, you will most likely receive the modified loan. There are cases where lenders change their minds, however.

Why Would A Lender Consider Loan Modification?

One thing that is critical to know when considering how to leverage loan modification as a remedy to foreclosure is that lenders are ultimately in the business of lending for one reason: money. They do not want your house; they just want your money. When they look at a property valued less than a loan, they will ultimately have to put the property back on the market and get it to market value, at best, if they foreclose. This will cost them a commission. On top of this, they may have to deal with evicting you and investing money into the property to renovate it.

Working With A Foreclosure Attorney For Loan Modification

The issue above raises the question, “Can I go directly to the lender without an attorney to request a loan modification or grace period?” Well, the truth is that it shouldn’t cause any problems to apply directly to a lender for a loan modification. However, you should be aware that doing so is generally frustrating because lenders are not very responsive. They are known to ask for documents you have already provided them. Additionally, engaging counsel to negotiate a loan modification for you is costly and doesn’t necessarily improve the odds of getting a loan modified.

Forbearance

Forbearance is when a lender agrees not to foreclose on a property if the borrower does certain things. For example, consider you are three months behind on your mortgage and your payments are $3,000 a month. In forbearance, the lender may agree to hold off on a foreclosure if you pay them $4,000 for a certain period. In this scenario, you would then have to appropriately structure and curate the agreement.

Refinancing

Refinancing options are available in certain circumstances but are rather limited…

• Conventional Lenders will typically not refinance a property with pending foreclosure because of the credit impairment associated with it. As a result, favorable rates are generally unavailable.
• Private lenders may refinance with a foreclosure pending because they do not care about your income, credit, or the foreclosure status of your house. What they do care about is the loan value ratio, and they will rarely loan more than 70% of the property’s value.
• FHA lenders in a Chapter 13 process will extend the loan to homeowners after one year in Chapter 13, so long as their payments to the trustee have been current in the last 12 months.

Your Legal Options

Because few conventional lenders are willing to agree to the arrangements listed above, it is much more common for homeowners to pursue their legal options.

Your legal options include:

• Getting a temporary restraining order from the court to stop the foreclosure sale, followed by a preliminary injunction.
• Filing for bankruptcy, which invokes the automatic stay under Section 362 of the bankruptcy code, preventing the lender from proceeding with the foreclosure sale.

Although a lender can negotiate a remedy, they do not have to. If they choose not to negotiate, you’re bound by the note to pay the rest and by the statutory rights that lenders have to foreclose on your home. If they do choose to negotiate, chances are that you would end up with a loan modification or, possibly, a forbearance agreement. They may also allow you time to refinance or sell a property. They may also allow you a deed-in-lieu of foreclosure, which is where you turn over the deed to the lender and they don’t require you to make any more payments. Regardless, your best alternative is generally to seek the rights and remedies available within Chapter 13 or Chapter 11 bankruptcy.

For more information on Your Remedies To Foreclosure, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (408) 295-5595 today.