Loan Modification and “SHORT SALES”
There are a number of ways to avoid foreclosure that don't involve bankruptcy. Depending on your financial situation and your bank's willingness to work with you, a loan modification, foreclosure mediation, short sale, forbearance agreement or deed in lieu of foreclosure are all available options. The number of clients facing foreclosure has soared since 2008. To address this, banks have become increasingly responsive to loan modification applications and many clients are seeing their monthly payments reduced. This is in part due to President Obama's new loan modification guidelines and in part due to the mortgage industry's desire to get homeowners who can afford their homes back on track and out of default. If loan modification is not feasible, filing for bankruptcy will still provide an opportunity to stop a foreclosure on your home. During these trying times, you do have options.
Loan Modifications and Foreclosure
A loan modification allows you to modify the terms of your existing mortgage in order to reduce your monthly mortgage payments.
If your bank agrees to modify your loan, you may be able to do some or all of the following:
- Reduced interest rates
- Roll the arrearage (missed payments) into the loan's principal, bringing your loan "current"
- Reduce the principal you owe
- Extend the term of your loan
Chapter 13 Bankruptcy and Foreclosure
If your bank is unwilling to modify your loan, filing for Chapter 13 bankruptcy may be another viable option for saving your home. If you file for Chapter 13 bankruptcy, you will be required to repay past due mortgage payments and a portion of unsecured debts over a three to five year period. This reorganization of debt will provide you with the opportunity to bring mortgage payments up-to-date and reduce the amount you pay on other bills. In some situations, refinancing may be an option while in Chapter 13 repayment.
A bankruptcy filing triggers an automatic stay, which prevents creditors from proceeding with foreclosures and other collection attempts. It may not be too late to save your home, even if a foreclosure auction has taken place.
Please note, Chapter 7 bankruptcy can also stop foreclosure and allow you to discharge unsecured debt such as credit cards, medical bills, and certain kinds of loans.
Our firm has experience negotiating short sales. Short sales are necessary when a homeowner wants to sell his home, but owes more than the home is worth. The process allows you to close your mortgage by selling your home for whatever amount you can get, subject to approval by the bank. For example, if you bought your home for $300,000, owe $350,000, and the home is now worth $200,000, your bank may agree to consider your mortgage obligation discharged if you are able to sell your home for at least $250,000. There are a number of issues that must be considered in short sales and our lawyers can assist you in negotiations with your mortgage company. In these situations, we may be able to help you obtain a waiver on the balance due.