Homeowners Facing Foreclosure: What Are Your Options?

Real Estate

Many times, homeowners in foreclosure come to me and ask, “What are my options right now?” Right now they are facing foreclosure with the auction in a month or two. Here is my answer.

1. You can call your lender and ask them to reinstate the loan. You may be allowed to reinstate or update the loan by paying a lump sum or making scheduled payments to your lender over a set period of time. Explain that you had a few bad months, but now you’re back on your feet and most lenders will try to work something out with you. This option usually works when homeowners are not too far behind on payments and can show that they are in better financial shape.

When they reinstate the loan, the Notice of Default (NOD) is lifted, the house is out of foreclosure, and everyone is happy. However, the owner’s credit was still affected by the NOD, which will take a bit of a toll.

Something similar to reinstating the loan is called a Forbearance Agreement. This is when you actually negotiate a “deal” with the bank. You can ask the lender if they will add the amount owed in late payments to the back of the loan, or take a smaller portion up front and add the rest to the back of the loan, or pay some up front and forgive the rest, or even ask them to sorry about the whole thing.

2. You can refinance your home. If there’s a lot of equity in your home and you’re not too far behind on your payments, this is a great option. Typically, the lender would refinance the existing loan and include as part of the new loan any late payments and fees it would take to regain control. The challenge most homeowners have is that they have gotten the most out of their home. So there is very little equity in the home, especially when you add late payments and fees, making it very difficult to refinance. This is one of the reasons California has one of the lowest foreclosure rates in the nation, because home values ​​are rising so fast that homeowners can refinance fairly easily if they ever run into trouble.

3. You can list your home with a real estate agent. If you have equity in the property, this can also be a great option. However, if you have little or no equity, which is often the case, it can be difficult to sell a house in a short period of time with a real estate agent. It is practically impossible when the house is over-leveraged. The reason why is because you have to pay a realtor fee or commission when they list your house. Usually it is 3-6% of the purchase price. Real estate agents have to increase the purchase price of the home to offset their commission and pay off the loan balance. If the foreclosure auction is coming up, they have to find a qualified buyer quickly, and this usually takes time.

4. You can sell the house yourself. All you need to do is put up a FOR SALE sign in your front yard. You need to tell everyone that you are selling your home, maybe they know a friend or family member who is looking to buy in the neighborhood. If you live in a high-traffic neighborhood with listings, you have a good chance of people calling you. Again, if your house is over-leveraged, you will have a very hard time selling your house quickly.

5. You can return the property to the lender. This process of transferring the property from you to the lender under these circumstances is called a deed-in-lieu of foreclosure and is sometimes called an “amicable foreclosure” because, in essence, that is what it is. You just walk away. A deed-in-lieu of foreclosure does not protect your credit, nor will it cut off the rights of minor lien holders. In other words, the lender would repossess the subject property to the lesser lien holders. This will prevent the possibility of a deficiency judgment in the event the property does not produce enough to cover outstanding debts after it is auctioned. So if you have equity in the property, this is not a good option. You will waive all rights to receive any surplus from the auction. Using this option is like giving up. Don’t give up when you still have better options.

6. You can sell your house to an investor. Most investors will negotiate with their lender to accept a discount on their loan. This is called a short sale. What this does is allow the investor to buy his home for market value so he can avoid the foreclosure auction and then he can turn around and sell it for a profit.

7. You can file for bankruptcy. There are several different “chapters” of bankruptcy. Some are exercises, some are killers, but this is the general idea. When someone files for bankruptcy, it’s almost as if someone built a “bulletproof” barrier around the house. Nobody can touch you! However, you are not free from all responsibility and most people do not understand this.

[Note: Bankruptcy should be the last alternative or option and should not be used to stop foreclosure unless you have no other option or else you need the protection of a bankruptcy due to other circumstances or situations you are currently up against. If you feel this may be your best option, please seek legal advice from a competent professional in this field.]

8. And finally, you can let it go into foreclosure. You basically do nothing. You will usually be evicted after about 2-3 weeks. You walk away with nothing in hand and a foreclosure on your credit report. This is without a doubt the worst option of all. Don’t let anyone talk you into giving up and doing nothing. At least try something. You’ve got nothing to lose. At this point there is nothing worse that can happen to you.

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