The Options if You Wish To Keep Your Home
Keep Paying
If you are current on your mortgage, you can keep paying even if your property
value is below your loan balance. The question is whether it makes financial
sense to keep paying and, if you stop, what liability you may face. Call
us directly to determine your exposure to liability if you stop paying
and what we can do to get rid of that liability. There is no charge for
this evaluation or our time. Only an attorney can evaluate your loan to
determine if it is recourse or non-recourse. Do NOT trust a real estate
agent to make this determination. It is illegal for them to even discuss
the issue unless they are also a licensed attorney.
Cure Default & Keep Current (“Reinstatement”)
You have a legal right to cure your default. In California, you can cure
your loan default at any time up until five business days prior to the
foreclosure date. You must notify the trustee in time to get an accurate
reinstatement amount and arrange delivery of the funds. Please call us,
and we can explain how a reinstatement works. There is no cost for this
advice. If you cure the default, you will then need to stay current on
your mortgage to keep your home.
Refinance/Reverse Mortgage
If you have substantial equity in your home (i.e. the property value exceeds
the mortgages), you might be able to get a new loan to pay off the current
loan that is giving you trouble. This option will only help if current
interest rates are substantially lower than the interest rate on your
mortgage. Additionally, some borrowers have interest-only or negative
amortization loans that have artificially lowered payments. A new loan,
which probably would not have this feature, will be of little help to
a borrower in distress because the new payments might actually be higher
than the old payments. Finally, most borrowers who are having difficulty
paying their mortgage are also victims of the severe decline in real estate
values and simply don’t have any equity in their home, or they have
missed many loan payments and are in default. A refinance is not available
to those borrowers.
If you are at least 62 years old and have equity in your home, you may
be able to get a “reverse mortgage” which would allow the
current loan to be paid off without having to make future payments. A
reverse mortgage requires significant equity in the home because the loan-to-value
limitations are more onerous. Therefore, both refinances and reverse mortgages
are available in very limited circumstances and are not viable options
for the vast majority of borrowers.
Repayment Plan
If you are in default, but have the ability to make payments, you can negotiate
a one- to two-year repayment plan with your bank to catch up on all past
due amounts by adding an extra amount to your current mortgage payments.
The bank has no obligation to work with you on a repayment plan, but if
you have a viable plan to get them paid current, they will listen.
Loan Forbearance
If you are facing a temporary hardship that you expect to recover from
quickly, your lender might be able to forgive or defer certain penalties
and fees in order to allow you to recover and eventually re-commence making
your regular payments. In some cases, the lender will provide a suspension
of payments for some period (generally three months). However, your payments
can actually increase after you have recovered from your hardship because
you will need to “catch up” from the period your loan was
in forbearance. You will need to document your hardship and be able to
prove that you expect to fully recover at some point. For borrowers facing
a long-term hardship, a forbearance is simply not an option.
Modification
If you fit within the narrow window between an affordable “front-end”
debt-to-income ratio and the Net Present Value test, you might qualify
for a modification of your loan.
A modification works by applying one or more of the following:
- Reduction in the interest rate (or locking in a variable interest rate)
- Extending the term of the loan (payments are spread over a longer period)
- Reducing principal (or putting some principal on the back of the loan)
- Adding past due amounts to the ‘back of the loan’
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is really a workout plan. The clear benefits of
a Chapter 13 are that it immediately stops a foreclosure and allows you
to propose a repayment plan to keep your home. A Chapter 13 bankruptcy
will allow you to repay your past due mortgage amounts along with all
your unsecured debt (like credit cards and medical bills) over a three-
to five-year repayment period. You must be able to pay your current mortgage
payments going forward while you also make payments on your three- to
five-year payment plan. The bankruptcy court cannot modify the terms of
your mortgage loans, but you might be able to remove a second mortgage
and have the whole amount included in the repayment plan with other past
due or unsecured amounts.
There is no cost or commitment to contact us and have your options evaluated
by a skilled and knowledgeable Attorney/ Realtor®.
Reach out to our team online or call
(949) 264-0966 today.
The Options if You Wish To Leave Your Home
Sell the Home in a “Regular” Sale (Even During Foreclosure)
If there is sufficient equity in your home, you can sell it to pay off
all the loans and other liens and receive the cash from your remaining
equity. Even if the home is in foreclosure, you have the legal right to
list and sell your home. We have helped many people stop the foreclosure
process so they could sell the home and get their equity out before the
market collapse further. You need to list your home with someone who can
show the buyers that you are serious. An Attorney/Realtor® indicates
to all buyers that they are not wasting their time making an offer on
your home and that you will not allow a foreclosure to occur.
Assumption (Sell ‘Subject To’ Current Liens)
With this option, you would sell your home to someone that would take the
property “subject to” the outstanding mortgage loans and other
liens. The buyer would then need to pay all the mortgage payments or else
the property would go back into foreclosure. This approach has very limited
application in the current market. Anyone suggesting this option should
be questioned extensively about their motives. It could be a scam or outright fraud.
Deed in Lieu of Foreclosure (a “Walk Away”)
If you can’t afford the mortgage payment and your property has no
equity, you might consider a deed-in-lieu of foreclosure (a “Deed-in-Lieu”).
In a Deed-in-Lieu, you agree to transfer title to the lender and turn
over the property instead of forcing the lender to go through the foreclosure
and eviction process. A Deed-in-Lieu almost NEVER happens in Southern
California. The issue with a Deed-in-Lieu is that the lender receiving
the Deed-in-Lieu takes the property subject to all other liens and encumbrances
(even if those other liens and encumbrances are subordinate and junior
to the loan). That means if there is a second loan on the property or
outstanding judgments, the senior lender taking the Deed-in-Lieu would
take the property with all those items
still outstanding against them as the new owner (which could then lead to a new foreclose
on the lender taking the Deed-in-Lieu). No lender would ever agree to
that outcome. Therefore, the lender would require YOU to pay off all those
liens! That simply is not going to happen. Further, almost every bank
that we deal with requires the homeowner to attempt a short sale before
they would even consider a Deed-in-Lieu.
Short Sale
Short sales have become the most popular and most successful alternative
to foreclosure. A short sale occurs when your lender(s) agrees to let
you sell your home for an amount less than the outstanding mortgage balance
(the proceeds of the sale are “short” of a full loan payoff).
Your lender’s approval is required because it has a secured lien
on your home that must be released to allow for the transfer to the buyer.
In a “regular” sale, the mortgage would be paid in full, and
the lien would be released; but in a short sale, there isn’t enough
money to pay off the mortgage. Therefore, without approval from the lender
to release the lien “short” of the full payoff, the sale wouldn’t
be possible.
You stay in your home during the short sale process. So long as you show
steady progress, the foreclosure will be postponed, allowing for the completion
of the short sale. We focus our legal attention on the foreclosure process
and postponement processing. Almost all banks are now offering a cash
incentive to the homeowner for cooperating in a short sale. You will be
released from all liability once the short sale is completed. A short
sale transaction is not only a real estate transaction, but also a legal
settlement of your mortgage default and a settlement of your loan. In
order to have full and complete protection during a short sale, you must
work with an Attorney/Realtor®. There are serious legal, tax, and
contract issues in every short sale, and real estate agents are not trained
or licensed to deal with these issues.
Chapter 7 Bankruptcy Followed by Short Sale
A Chapter 7 bankruptcy completely wipes out almost all debt and will relieve
you from all deficiency liability and cancelation of debt taxation on
your mortgages (i.e. no need for the Mortgage Forgiveness Debt Relief
Act of 2007 – no matter what any real estate agent may tell you).
Although you are given a “fresh start” through the cancellation
of your debts, the bank’s mortgage will remain as a lien on your
home. The filing of a bankruptcy case will TEMPORARILY stop a foreclosure
(under the “automatic stay”), but the bank can recommence
that foreclosure within three to five months. The only way the bank can
recommence foreclosure is if the case is closed (through dismissal or
after discharge) OR if the lender files a motion for relief from the automatic
stay. If the bank aggressively seeks that motion, they could be back at
foreclosure in three months. If they don’t file that motion, you
would have five to six months in the home. However, if you have an Attorney/Realtor®
working on your behalf, you can combine the time and protection afforded
by a Chapter 7 bankruptcy with the additional time and cash incentives
of a short sale. We specialize in this approach and can show you how to
stay in your home for a year or more. Additionally, we work with your
current bankruptcy attorney in this plan. We do NOT need to file your
bankruptcy for you to take advantage of the BK/short sale combination.
The key is to have a vigilant representative watching your bankruptcy case
so you know when to deploy the short sale strategy that will further suspend
the foreclosure. Regardless of whether we process your bankruptcy, or
you already have an attorney, Lawyers Realty Group will track the bankruptcy
process and watch the bank’s actions. We will receive electronic
notices of all bank activity and will know if we need to move to the second
phase of extending your time in the home.
Please do not make any decisions, pay any money, or sign any documents
or listing agreements before speaking with us, as you will be giving up
critical legal protections.
