Resources for preventing foreclosure

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.

So you’ve missed a few payments and the bank has sent you several letters letting you know that unless you start making amends, they’re going to foreclose. Again, remember communication with your lender is key because neither one of you wants to go through a foreclosure because no one wins… the bank just loses less.

A re-amortization is exactly what it sounds like, they recalculate your loan after adding your missed payments onto the principal of the loan. What this does is it will increase your payments because your total debt has increased and it’s an option the bank will take if you can show that the payments you missed were temporary and that you can make these new payments. They won’t re-amortize if you’re going to just miss the new payments and fall down that slippery slope once again.

Reinstatement is when you basically catch up on all the payments, all the late fees, and all the other costs incurred as a result of you missing your payments. In an ideal world, if you are able to, your lender will probably accept your “temporary indulgence” and set everything back to normal. However, we don’t live in an ideal world and chances are you missed all those payments because of a financial downturn and you’re likely, even if you do catch up and get current, to miss payments in the future.

Regardless, that’s what a reinstatement is and that’s certain one of best options out there if it’s feasible for your financial situation. Unfortunately, unless you find a particular generous benefactor, this isn’t going to be an available option to you.

So you’re late on your payments, sometimes as much as six months late, but you still haven’t received a phone call or letter from your lender demanding that you pay? That’s not uncommon nowadays, especially with the subprime lending meltdown and other lending disasters. What’s going on is that the firms that bought your loans from your original lender haven’t filed any Notices of Default (NOD) because then all that information would become public. The fact that you can’t pay would become public, the fact that the property may be auctioned off at lower than the mortgage becomes public, and all that information is going to feed the financial instruments that institution is trying to sell.

If you’re late, they know… they just don’t want anyone else to, yet.

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.

You are getting all this mail because the property to be foreclosed is now a matter of both public record, where anyone can go and request that information from the courts, and it has been published in local newspapers. There are even services out there that will provide your information to their list of subscribers because your home represents an opportunity for them to benefit financially. Sometimes these folks will be helpful, sometimes these folks will be opportunistic, but don’t necessarily ignore them… some may give you a way out that is better than foreclosure.

You can’t make your payments anymore and you’ve tried working with the lender but it looks like the path to foreclosure is inevitable. The next thing that happens is that someone will probably come to your house and offer to buy your house from you, should you take his offer? It depends.

There are essentially two scenarios and it depends on the amount of the offer versus the amount you still owe on the home. Now remember, when the property is eventually auctioned off, any equity that you may have had in the home is gone.

Offer Is More Than Outstanding Loan Balance
If this happens then may want to consider taking this offer if you can’t strike up a deal with the lender because the difference between the offer and the loan balance will be yours to keep. So, if you bought a home for $300,000 and have $280,000 left on the loan when you start missing payments, it may be a good idea to accept that offer because you will get to keep the extra $20,000 difference and satisfy the loan.

Offer Is Less Than Outstanding Loan Balance
This will be an offer you like would want to pass on because the lender probably wouldn’t approve it because you’d be selling the collateral of the loan without fully satisfying it.

What this means is that you’ll probably field a lot of calls from people looking for scenario two and fewer people looking at scenario one, simply because they’re looking for deals. Unfortunately they can always wait until it hits the auction but you can’t.