Joe Heffley

A homeowner in distress is not necessarily doomed to foreclosure.  There are ways to avoid the devastation of foreclosure.  Here are six methods of retaining ownership of a house in default or pre-foreclosure, which Stop Foreclosure Denver can assist with little or no cost to the owner:

1. Refinance: The borrower pays off the existing mortgage loan with the proceeds from a new loan.
2. Repayment Plan: The borrower is allowed to catch up on missed payments by paying more than one full payment per month until the account is brought current.  This is very difficult if the financial problem that led to default is anything more than a temporary glitch.
3. Forbearance Plan: The borrower is allowed to suspend all or part of a monthly payment for a specified time period based on Bank agreement.  The missed payments may be rolled into the existing balance, or become part of a Repayment Plan or Modification.
4. Loan Modification: Allows for changes to the original terms of a borrower’s promissory note, which may include any combination of the following: an adjustment to the interest rate; an extension of the term of the loan; or an increase in the loan amount by the amount past due.
5. Short Refinance: Allows the forgiveness of a certain amount of principal balance, in conjunction with Forbearance and a Repayment Plan.
6. Bankruptcy: A borrower’s loan may be changed from the original terms based on a Loan Modification as part of a court-approved reorganization plan.

When Keeping the House Is Not Possible

Unfortunately, when all other options fail, a distressed homeowner must face facts and accept the inevitability of losing the house.  But foreclosure is still avoidable. There are still two options left.

1. A Deed-in-Lieu of Foreclosure (DIL) allows for transfer of a property to the Bank without going through the full foreclosure process.  This is usually the “last resort” option, following failed attempts to sell or refinance.  The benefit to the Borrower is that this has slightly less of an impact on his or her credit rating than a foreclosure would.  For the Bank, it shortens the process and therefore the costs associated with taking the house back and selling it to recoup debt.  It also allows the Bank to avoid any entanglements if the Borrower should decide to file bankruptcy after the DIL is granted.A DIL is done outside of a court and is a settlement of the entire debt.  The settlement amount is generally the fair market value of the property.  A DIL is a voluntary action and must be initiated by the borrower – the Bank is unlikely to suggest it.A Bank may not allow a DIL if other liens on the home exist, since receiving a voluntary transfer by way of deed does not wipe out inferior liens the way a foreclosure does.  However, there are some types of liens a Bank may accept with the DIL.

   A DIL may not be the optimum solution for a homeowner in distress as it remains a black mark on credit for up to seven years and usually doesn’t address other liens for which the homeowner might be pursued even after the home is lost.

2. A Short Sale occurs when a Bank agrees to take less than what is owed to settle the mortgage in full (a discounted pay-off) and releases its lien on the house upon a sale of the property.  Because the homeowner owes more than the property is worth on the open market, the Bank may approve a sale for less than the debt and agree to this sort of arrangement to avoid a costly foreclosure.Before a Bank will accept a short sale, two conditions usually must be met:A.     There must be little or no equity in the property.  Obviously, if there were enough equity in the house to sell on the open market and use the proceeds to pay the bank in full, this would already have been done, with “No harm, no foul” to either Bank or Borrower.

   B.     The homeowner has a legitimate hardship, as defined by the Bank. The problem(s) that are causing the borrower to be unable to continue making the mortgage payments are not temporary (e.g. just behind a month because of overspending). Poor financial decisions are generally not considered hardship, and full financial disclosure will be required to determine if the borrower has assets that can be applied to the debt.

Stop Foreclosure Denver is extremely knowledgeable and well experienced in helping homeowners in determining which option best suites the homeowner. For more information on how Stop Foreclosure Denver can help you please sign up to get our FREE Report or Email Joe HERE or Call 303-598-3930