Short sales are one way for a homeowner to avoid foreclosure. A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished. A homeowner will have been issues a Lis Pendens, also known as notice of pendency, “lis pendens” is Latin for “suit pending.” In judicial foreclosures, this is a “notice to the world” of a foreclosure action. It is filed with the county clerk . A Lis Pendens is issue when homeowners have been falling behind on payments and can no longer afford the property, due to some type of hardship.
Benefits of a short sale include, a reduced mark on your credit, allowing you to qualify for a mortgage within 12-24 months. Homeowners living in the home are also eligible for a relocation bonus of up to $10,000.00!
A reinstatement occurs when a homeowner can pay in full the past due amount, including any late fees to the lender. Although this is the simplest solution, in most cases homeowners have fallen behind due to a hardship, and is most difficult for homeowners to satisfy.
Forbearance or Re Payment Plan
You may be surprised at the willingness of banks to negotiate a payment plan, however, keep in mind they will do all that they can to protect their asset.
In this case the mortgage company will allow the homeowner to repay the back payments, or an agreed upon payment schedule. The owner is required to remain current on the mortgage, additionally paying a portion of the back-payments owed.
Depending on your situation and bank, you may may allow a mortgage modification. A mortgage modification does require bank approval, give them a call right away find out if this is an option for you. The bank will offer either a reduction on the interest rate of the loan, the principal balance of the loan, the term of the loan or a combination of all three.
Rent The Property
Although being a landlord does not sound attractive, it can in some cases save your home. It is necessary that your rents collected cover the monthly mortgage payment as well as any additional expenses such as your taxes, waste removal, etc. An owner should consider there will be routine maintenance needed, possibly vacancies and/or unavoidable expenses, for example, if you need a new roof or furnace.
Deed in Lieu of Foreclosure
Lender approval is required, this process allows the homeowner to return the property to the lender,preventing the foreclosure from taking place. Additionally the homeowner must vacate the home, in light of surrendering the property, a deed in lieu can potentially lesson the damage to a credit score and future loan eligibility.
Additional Debt/Hardships other than a mortgage are required to qualify and must be proved.
The law varies state to state, do your due diligence to make sure bankruptcy is a solution for a pending foreclosure. Results from bankruptcy include 200-250 points taken off your credit score as well as remaining on your credit for the next 7-10 years and can be very costly.
Servicemembers Civil Relief Act
*Only Applicable for Military*
Upon deployment, if a member of the military is experiencing financial distress, and that person can prove the debt was entered before deployment, he/she may qualify under this relief act.
Please contact the American Bar Association who at their disposal can provide you with a network of attorneys that will help service members qualify.
Sell the Property
If you have enough equity in your home to cover the existing debt, selling your home is the best option. Unfortunately most homeowners, have little to no equity, and owe more than the home is worth.