If you’re at risk for losing your home because of inability to pay, know that there are options for you to keep your home.
Available Options for Keeping Your Home
Being at risk for foreclosure can be one of the most devastating things a homeowner could face. Regardless of why you might not be able to make your mortgage payment – either through job loss or credit card debt – there are options for you to be able to negotiate with your lender and stay in your home.
You also do not need to be in dire straights to be in a negotiating position with a lender. While some lenders will need to see proof of hardship, they also appreciate any attempt to pre-plan and avoid foreclosure on your part. In fact, even if you have not yet missed a mortgage payment, but fear that you might fall behind in the near future, you should take action.
There are various options available, including refinancing or modification of your mortgage loan with lowering your payment and making it more affordable. For homeowners that have missed payments and find themselves buried in late fees and past-due notices, you might be able to qualify for temporary or permanent solutions that will allow you to avoid foreclosure and also get your financial bearings back on track.
Refinancing means securing a new loan that with a different, and even better interest term rate, new terms, and a new monthly payment. This option completely replaces the previous mortgage. The payment is made more affordable through either lowering your interest rate or adjusting the terms of the loan.
The first mortgage is paid off, which allows the second loan to be created. Borrowers with a good credit history often find refinancing to be a good way of converting a variable loan rate to a fixed rate, while also securing a lower interest rate. Refinancing can be a riskier choice for borrowers with less than perfect, or even bad credit, or too much debt. Refinancing will also not negatively impact your credit activity or history.
Even if the value of your home has decreased or if you are underwater and you owe more than your home is worth, you may be able to refinance your loan.
Home Affordable Refinance Program (HARP)
The government offers the Home Affordable Refinance Program (HARP) to help you refinance. This is a federal program that was created by the Federal Housing Finance Agency in March 2009 to help underwater and near-underwater homeowners refinance their mortgages. There are various places online where you can see if you qualify for HARP.
Typically, you will need to provide the following to see if you are eligible:
- Your most recent income tax return
- Information about any junior lien mortgage on the house
- Account balances and monthly payments for all of your debts
HARP can be a great option for struggling homeowners.
A repayment plan is an agreement between a homeowner and the mortgage lender where the homeowner pays the past due amount that is owed. It is used to help resolve delinquency. Typically the past due amount is added on to mortgage payments—over a specified time period in order to bring the mortgage current. Essentially, a repayment plan allows a homeowner to catch up on your past due payments over an extended period of time. This is less damaging to a homeowner’s credit score than a foreclosure and also allows the homeowner to stay in their home while avoiding foreclosure.
A forbearance is when a mortgage company temporarily suspends or reduces a homeowner’s monthly mortgage payments for a specified period of time in order allow a homeowner to get back on solid financial footing. Tax, insurance, escrow, or impound amounts can be suspended for a set period of time, which will help a homeowner stay in their home and avoid forbearance. This option is also less damaging to your credit score than a foreclosure.
Your lender will need to determine if you are eligible for a forbearance, but often that eligibility is based on a loss of income due to a number of things, including: medical illness, death of a co-borrower, natural disaster, or unemployment. All of these circumstances must have a clear end so that the lender can set an amount of time.
A modification is an agreement between a homeowner and a mortgage company to change the original terms of the mortgage. Terms include: payment amount, length of loan, interest rate, etc. This can help to reduce monthly mortgage payments so that they are more affordable for a homeowner. This is also less damaging to a credit score than a foreclosure.
Home Affordable Modification Program (HAMP)
The Home Affordable Modification Program was outlined in 2009 and provides clear and consistent loan modification guidelines when it comes to the modification of a home. Under HAMP, a loan is modified so that a monthly mortgage payment is no more than 31% of your gross (pre-tax) monthly income. If a homeowner is eligible, the modification permanently changes the original terms of the mortgage.
- The homeowner is ineligible to refinance
- The homeowner is facing a long-term hardship
- The homeowner is behind on your mortgage payments or likely to fall behind soon
- The original loan was originated on or before January 1, 2009 (i.e., the date the homeowner closed your loan)
- The loan is owned by Fannie Mae or Freddie Mac – or is serviced by a mortgage company that is participating in the HAMP program.
What Happens During Foreclosure
Below you will find the main steps of a nonjudicial foreclosure. Nonjudicial foreclosures are the majority of foreclosures in California.
Nonjudicial Foreclosure Process
Foreclosure Avoidance Assessment
1. Foreclosure Avoidance Assessment – The lender will, and must, contact everyone listed on the mortgage loan in order to assess the financial situation and explore any potential options to avoid foreclosure.
Additionally, the lender:
– Is not allowed to start the foreclosure process until at least 30 days after contacting those listed on the mortgage to make this assessment
– Must advise you during the first contact that you have the right to request another meeting regarding how to avoid foreclosure. This meeting must be scheduled to take place within 14 days of that first contact
You can authorize a lawyer, HUD-certified housing counseling agency, or other advisor to speak with the lender on your behalf about ways to avoid foreclosure. And you cannot be forced to accept any plan that is reached during that discussion.
Notice of Default
2. If a plan to avoid foreclosure is not found, the lender can record a Notice of Default. This must be recorded in the county where your home is located and be issued at least 30 days after contacting you for the foreclosure avoidance assessment. This Notice of Default marks the beginning of the formal and public foreclosure process. The lender must send you a copy of this notice via certified mail within 10 business days of it being recorded. You then have 90 days from the date that the Notice of Default is recorded to fix the default, usually by paying what is owed.
Note: Before the foreclosure process begins, the lender may send you letters that are NOT notices of default, but demand payment.
Notice of Sale
3. If you do not pay what is owed, a Notice of Sale is recorded, stating that the trustee will sell your home at auction in 21 days. This takes place at least 90 days after the Notice of Default is recorded.
The Notice of Sale must:
– Be sent to you by certified mail.
– Be published weekly in a generally circulated newspaper in the county where your home is located for 3 consecutive weeks leading up to the sale date.
– Be posted on your property, as well as in a public place.
– List the date, time, and location of the foreclosure sale, as well as the property address; the trustee’s name, address, and phone number; and a statement the property will be sold at a public auction.
Property Sold at Public Auction
4. The property can be sold at public auction at least 21days after the date when the Notice of Sale is recorded. A successful bidder is required to pay the full amount, either with cash or a cashier’s check. The successful bidder then receives a trustee’s deed. The lender usually bids at the auction, in the amount of the balance plus the foreclosure costs. If no one else bids, the home goes to the lender.
Working With an Attorney
If you are unable to keep up with your mortgage payments, you’ll want to contact a lawyer that can help you avoid home foreclosure. It is easy to feel helpless in a situation like this. The right lawyer can help save your home using a number of legal options, including Chapter 13 bankruptcy. At the law offices of Resnik Hayes Moradi LLP, we help the people throughout the San Fernando Valley, Los Angeles, Riverside, San Bernardino and Orange counties to avoid home foreclosure and get the debt relief they deserve. If you need to avoid home foreclosure and you have decided to pursue bankruptcy as an option or home loan modification, we will help you save your home.