Entries Tagged 'Alternatives' ↓

Chapter 13 bankruptcy, also known as the wage earner’s plan, is a type of bankruptcy that lets people with income develop a plan to repay all or part of their debts. Basically the debtor comes up with a repayment plan and it allows that person to keep assets such as their home, which is what’s important to you during foreclosure. The Chapter 13 attorneys that contact you have one thing in mind - making money.

Now, the fact that they contact you is great because it means they believe you have the financial ability to do the Chapter 13 bankruptcy, but it may not be in your best interests. See, because the Chapter 13 attorneys are interested in billability, they will offer their services even if its not the best choice for you. Bankruptcy should always be a last resort.

If you’re facing foreclosure, you might be contacted mortgages brokers. The reason they are contacting you is because you have enough equity in your home and they believe that they can use that to help you refinance your mortgage. When you refinance, the lender gets their money, the foreclosure process stops and you get to stick around. While the fact that they contact you isn’t reason to believe you’re in the clear, it’s certainly a good sign and one you should pursue.

The one big drawback to all this is that your credit is already suspect because the lender is going through the foreclosure process. While not officially dinged, these mortgage brokers know that you’re having difficulty so the loans you might be offered may have high closing costs and/or high fees. Just keep your eye out and make sure you understand all the fine print before you sign something, you might just be digging yourself into a deeper hole but it’s definitely a glimmer of light at the end of the tunnel.

Unfortunately for those who are facing foreclosure, refinancing in this current credit crisis will likely become extremely difficult, closing off one popular way for many try to pull themselves out of foreclosure. Capital One is shutting down its mortgage business, Countrywide is looking for ways to keep funding its business, and American Home Mortgage shut its doors. Jumbo loans, loans over $417,000, rates spiked since the prospect of finding a buyer, after a lender secures the loan, have fallen. It’s any ugly time for lenders and even uglier for those looking for a loan, especially if they’re trying to get out from under an ARM that will re-evaluate and kick someone out of their house.

Unfortunately, this is not possible, however the filing of bankruptcy will trigger an automatic stay. The automatic stay will stop all creditors, including the bank, from taking action to collect their claims, including foreclosing on your home. The automatic stay is temporary, so while there is no way to permanently prevent a foreclosure by filing for bankruptcy, you do get a brief respite. Of course, the creditor (bank) can request a relief from stay from the judge, which would lift the automatic stay and allow the foreclosure proceedings to continue.

Remember this fact: Banks do not want to become real estate investors, banks want to be lenders and earn interest on that money. That being said, if you give a bank no choice but to foreclose, they will because they don’t want to drag out the process any longer than necessary. So, you have to give them reasons to believe that the loan is still viable, that you are still a good borrower, and that everything will one day be peachy. So, what alternatives are there to foreclosure?

Special Forbearance:
Everyone falls on hard times at one point or another so banks can be understanding, even if it feels like they’re cold monolithic creatures. You may be able to arrange an alternative repayment plan, a temporary reduction or suspension of payments, or some other special arrangement. What you’ll need to do is be up front with your bank, show the cause of the difficulty, and how you’ll get back on track.

Refinance or Modification of Mortgage
Whereas the first alternative is a temporary adjustment to your mortgage, this one refers to a more permanent adjustment by way of refinancing or modifying your mortgage terms to modify the amount you will have to pay each month. If you’re in an ARM that will adjust, say to 7%, then it may make sense to refinance to a fixed payment if the rates are in the 6’s. While you may incur some refinancing costs, those could always be rolled into the loan.

Selling in Pre-Foreclosure
This refers to selling your property before its foreclosed, which may allow you to recapture some of the equity you may have in the home.

Deed-in-lieu of Foreclosure
This essentially surrenders your home back to the bank, which won’t get you anything except escape from the messy and credit-damaging proceedings of an actual foreclosure.

So, those are your four options. Please seek a financial professional for an in-depth analysis of your particular situation, especially since laws in every jurisdiction is different, before making any decisions.