Free Home Foreclosure Help
Keep your house. Here's how
When you purchased your home in happier times, you borrowed money to make home ownership possible. You signed a mortgage or a deed of trust, that gave the lender the right to foreclose on your house if you fail to make the monthly payments.
Now you find that you are not able to make the monthly repayments of the borrowed money. The threat of foreclosure doesn't necessarily mean that you are going to lose your home. If you are facing foreclosure, you have options to use and legal rights to protect you.
Help with Home Foreclosure
As a homeowner who faces foreclosure, here's what can you do.
- If you face home foreclosure, negotiate. If you want to keep your house, contact your lender right away. Your best strategy is to negotiate a workout with the lender. Contact the lender as soon as you know you cannot make the monthly payment. Explain the circumstance you face, whether it is a lost job, prolonged illness or other hardship. Outline your plan to make up missed payments at the end of your mortgage, or over a specified period of time. Then decide when you will be able to resume making regular mortgage payments. You can negotiate with the bank for temporary relief from making your monthly payments. You can also ask for a reduction in your loan balance.
Your bank or mortgage lender doesn't really want to foreclose on you at this time. Consider the point of view of a bank. Iit doesn't want to repossess your property and take ownership of it. Because of falling real estate prices, the bank expects that the selling price of your home will be less than the balance owed on the mortgage. Thus the bank faces a loss if it foreclosures on the mortgage. Also, the bank does not want to manage and maintain the real estate, and offer it for sale at a later date. The uncertainty of the real estate market makes the bank willing to work with you to keep you in the home.
- For free help with a home foreclosure, consult a free housing counselor. The counselor will review your situation with you and act as the negotiator for you with your lender. The Department of Housing and Urban Development, HUD, has a list of approved counselors. You can also locate a free counselor through the Homeownership Preservation Foundation, the Homeownership Crisis Resource Center and the National Foundation for Credit Counseling.
- If you face home foreclosure, you can reinstate the existing loan by making up the missed payments, plus costs and interest. Even though you have received the notice of default from the bank, your state guarantees you a certain amount of time to reinstate your loan. All states have a different time period during which you can reinstate your loan, from 10 days to 3 months.
- If you face home foreclosure, refinance the entire loan. If you can refinance your mortgage at a better rate and pay off the old loan, you can start repaying the new mortgage with lower your monthly payments and possibly extend the maturity of the loan.
- If you face home foreclosure, apply for a government program. The Housing and Economic Recovery Act of 2008 provided mortgage relief to homeowners. The program authorized the Federal Housing Administration FHA to insure up to $300 billion worth of refinanced loans. If you qualify for the program, and if your lender voluntarily agrees to convert your mortgage into a lower-interest fixed-rate 30-year mortgage, the lower payments mean you will be able to keep your home. The lender must agree to cash out your loan at 90% of its current appraised value. To qualify for this program, you must be in default on your mortgage and swear that the default was not deliberate. You must be able to afford the new mortgage, according to the affordability standards of the program.
- If you face home foreclosure, arrange a short sale, instead of a foreclosure. With the agreement of your lender, you can sell the house for less than the mortgage owed, turn the proceeds over to the lender, and the lender agrees to forgive the amount you owe in excess of the sales proceeds. Homeowners hoping to preserve their credit rating choose a short sale over filing bankruptcy. An experienced real estate broker can help you arrange a short sale. You must be sure to get an agreement to a short sale in writing from all mortgage lenders, first, second and third mortgage lenders. If you have a second or third mortgage on the house, it's unlikely that these lenders will agree to the short sale because they will probably collect nothing.
- If you face home foreclosure, deed the house over to the lender, instead of facing foreclosure. If you sign the deed over, the lender accepts the house in full payment of the mortgage. Be sure to get this agreement in writing, so that the lender can't sue you later for any loss or shortfall. When you deed the house over to the lender, you will not have to sell the house yourself. Again, if you have a second or third mortgage on the house, these lenders will probably not agree to the deed signing, because they will collect nothing.
- If you face home foreclosure, arrange a reverse mortgage. If you have substantial equity in your home and are at least 62 years old, you are able to get a reverse mortgage. Your lender will pay you a lump sum for your house, but you can continue living in it as long as you wish, even until your death. While you live in the house you make no mortgage payments. When you move out of the house, or upon your death, the lender automatically owns the house.
- If you face home foreclosure, delay the foreclosure sale by filing for Chapter 7. Whether or not you want to keep your home, filing for Chapter 7 bankruptcy can help. As soon as you file, the foreclosure action is halted. Much of your personal property will be sold to pay off your debts. You'll be allowed to keep basic necessities like furniture, clothing, car, computer and tools of the trade, depending on your state laws. Chapter 7 bankruptcy will wipe out your unsecured debt, credit card debt, medical debt, personal loans and other money owed. How much of your home equity you can keep depends on your state laws.
The debt relief under Chapter 7 bankruptcy will give you more cash to get current on your mortgage and continue making monthly payments on time. Bankruptcy will not wipe out student loan debt, back taxes, overdue child support, alimony owed and various legal fines that you might owe.
If you have decided to leave your home, filing Chapter 7 bankruptcy will give you some time to live in the house free of charge. Your lender can continue the foreclosure action in a few months.
- If you face home foreclosure, file Chapter 13 bankruptcy. If you want to keep your house, Chapter 13 bankruptcy is a viable option. You can also file Chapter 13 bankruptcy when you want to delay the foreclosure action. When you file for Chapter 13 bankruptcy protection, the foreclosure action is halted. In Chapter 13 bankruptcy, you create a budget plan for making your regular monthly payments and paying off the delinquent mortgage payments. If the court approves your plan, you have three to five years to make the payments you agree to. It's possible that your other debts, including a second or third mortgage, will be eliminated or reduced. With Chapter 13, there are also situations when you can be released from a second or third mortgage entirely. Chapter 13 can possibly reduce your first mortgage to the current market value of the house, and even reduce the interest rate on your first mortgage to near prime rate.
- If you face home foreclosure, fight the foreclosure in court and either stop it or delay it. Can you show that the lender did not follow your state's procedures for foreclosing real estate mortgages? Can you show that the lender made accounting errors, or improperly applied fees?
- Are you on active duty in the military and facing home foreclosure? Service members have extra safeguards against the foreclosure lawsuit while you are on active duty. You and your counselor should consult the Servicemembers Civil Relief Act to take advantage of additional bankruptcy protection.
- If you are facing home foreclosure, for some people, it makes economic sense to walk away from the house and the mortgage. Suppose you say goodbye to the house and let the chips fall where they may. The lender will foreclose on the property and resell it to someone else. This works for you if your mortgage is a non-recourse loan, which means that the lender can't sue you afterward for its losses. Most states allow the lender to sue you for the deficiency. If you have a second and/or third mortgage on the home, walking away will not release you from any second or third mortgage on the home; you'll still owe these lenders.
Your equity in the home is its current market value minus the amount of the mortgages you owe on it. If you have substantial equity in your home, it is not a good idea to walk away from the mortgage. You'll probably lose most of the equity when the lender resells the house for a quick turnover.
There is also a curious income tax consequence when you walk away from a home mortgage debt. If your lender waives the unpaid mortgage in excess of the market value of the house, the IRS says that this waiver is a gift and is taxable income for you. You receive no cash from the lender at this time, but the forgiveness of the debt that you should have paid constitutes income. You are required to pay income tax on this amount. The lender will notify you by sending you Form 1099C. Check with your tax advisor for ways to avoid or reduce this tax.
Live in Your Home Free During Foreclosure
Take advantage of the positive benefit during home foreclosure
. If you decide to allow home foreclosure to continue, or if you have no other alternative to foreclosure, there is a positive benefit to you. State laws allow you to stay in the house as long as the foreclosure is underway, and even after the foreclosure. In almost all states, you can live in your house until the new owner gives you a formal written notice to vacate the property. You will not have to make any mortgage payments during that period. After the lender forecloses, the lender might not evict you from the home for many months. Homeowners facing foreclosure can use this period to save their cash for a new start somewhere else. When you receive a notice demanding that you leave the house, it's time to move. Don't wait until the owner evicts you. If the new owners evicts you, they can also sue you for back rent. Once you've been evicted, a new landlord might not rent to you.
Home Foreclosure Scams
As soon as the foreclosure action become public record
, scammers will contact you will foreclosure rescue programs.
- Home Foreclosure Scam #1. Often they offer to provide negotiation and counseling for a fee paid upfront. They are likely to skip town with your payment. In any case, you know now that there are free, legitimate, nonprofit housing counseling agencies available to work on your behalf. Don't fall for the scams, no matter how distressed you are and no matter how persuasive the scammers are. You never have to pay anyone for this service.
- Home Foreclosure Scam #2. The scammers offer to buy your house, make the mortgage payments for you, allow you pay them rent and buy the house back when the loan is paid off. There are many versions of this solicitation. In some cases, after you deed your house to the scammer, the scammer resells your house and takes off with the money, never to be heard from again. The new owner will quickly evict you from the home you no longer own.
Your State Laws Regulating Home Foreclosure
State laws regulate the lender's practices during home mortgage foreclosure
. About half of the states require the home foreclosure to go through court and get the approval of a judge. In these states, your debt instrument is called a mortgage. The other half of the states allow your house to be foreclosed and sold without court approval. In these states,l your debt instrument is called a deed of trust. With a court foreclosure, you will have more time to explore your options.
How much time you have before your house is sold depends upon what state you live it. You may have anywhere from 15 days to 3 or 4 months between the time you receive the notice of foreclosure and the time the house is sold. Consult your counselor for the procedure in your state.
Notices of Home Foreclosure You Receive
Depending upon the state you live in
, you'll receive several notices during the foreclosure action by certified or first-class mail. You will receive a notice that the lender is filing a court complaint. Then you'll receive a notice of intent to begin foreclosure proceedings. A process server may serve you with the notice, or a sheriff may post the notice on your front door. You may receive a notice of sale when the house has been sold. Many states also require that the lender publish the notice of foreclosure in a newspaper. In a few states, you will receive no notices because the lender is only required to post the foreclosure notice on the courthouse door. A couple of states allow the lender to take possession of your home by "peaceful entry," but this practice is not used very often. Your counselor can answer these questions for you.
The Deficiency Judgment in Home Foreclosure
Will you be liable for a deficiency judgment
? If the house is sold for less that the balance owed the lender, the lender may have the right to sue you for the difference. Some states give the lender this right to sue you, and other states say that the lender has "no recourse." If the lender has the right to sue you for the balance of the mortgage, you will want to file bankruptcy to erase this liability.
How Home Foreclosure Affects Your Credit Rating
Many homeowners ask how a home foreclosure
, a short sale or a bankruptcy will affect their credit rating. They particularly ask how long will it take to rebuild their credit so that they can buy a car on credit or borrow to buy another home? These are unusual times, and lenders are rethinking all their credit policies. No one can predict how lenders will behave. In the past, it used to take two years of good credit to purchase a car on credit, and four or five years of good credit to qualify for a home mortgage.
I hope life brings you much success. I wish you a very happy day.
----- Surfer Sam
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