Are you facing a possible foreclosure?

Home owners who are facing foreclosure are in a very difficult situation and many people are embarrased and devastated at being in this position and often don’t know where to turn. 

Reasons for Pending Foreclosure

Here are a few of those reasons why homeowners may find themselves facing foreclosure:

• Job loss / unexpected unemployment
• Sudden illness or medical emergency
• Death in the family
• Divorce/ loss of second income
• Excessive debt obligations
• Job demotion or job relocation
• An interest rate on their mortgage that resets and results in higher payments than the homeowner can keep up with

Ways to Avoid Foreclosure

After you have missed some payments, the lender files a Notice of Default. That is when the countdown to foreclosure really kicks in.  In California, the lenders have 90 days after filing Notice of Default before they can post a Notice of Trustee Sale – which must give the homeowner 20 days notice of the pending sale.  If you realize that you will not be able to meet your mortgage obligation, the first thing you should do is call your lender.  Don’t ignore attempts to contact you from your lender.  Contact your lender before you fall behind in your payments.  Don't wait until it is too late. 

Here are some possible options your lender might propose to you in dealing with your financial hardship:

Time to make up your payments or forbearance.Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you.

Forgiving a payment. If you can agree on a way that you will be current after missing a payment or two, the lender might give you a break and waive your obligation.  This rarely happens.

Spread out the missed payments  or repayment plan.  For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up.

Changing the terms of your loan.  If you have an adjustable loan, the lender might freeze the interest rate before it increases or lower the interest rate.Add the back payments to your loan balance.The lender may increase your loan balance to include the missed payments and re-amortize the loan.

Ways to Stop Foreclosure

It is important that you contact the lender before the Notice of Default is filed – even before you fall behind in your payments.  Once the Notice has been filed, you have fewer options. You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:

Sell your home.  If your home is worth less than you owe, consider a short sale.  A short sale will have a negative impact on your credit but not as much as a foreclosure.  Depending on your situation, this could be a good alternative to foreclosure.   

Lenders are sometimes willing to take less than the amount owed on the home.  . A Realtor experienced with short sales can help you here.  The Realtors with Pedersen Real Estate have closed many short sales and would be happy to answer your questions about short sales. 

For many borrowers, there is psychological satisfaction in having avoided losing their home through a foreclosure. A short sale is perceived as an honorable way to give up a home.  There may be tax and/or financial implication that you should be aware of before deciding to do a short sale. We highly recommend that you consult a tax accountant and/or attorney.  The time frames for purchasing a home again are generally shorter for someone who has done a short sale vs. someone who had a foreclosure.

We strongly recommend that you consult with an attorney and tax professional before deciding to do a short sale as there may be tax and financial implications for you. 

A good website by Fannie Mae on avoiding foreclosure

Deed-in-Lieu of Foreclosure.  A deed-in-lieu of foreclosure  is where the homeowner voluntarily deeds the property back to the lender.  Generally this is a last ditch effort by the homeowner to avoid the negative consequences of foreclosure. In return for the voluntary conveyance to the lender, the homeowner is often released of any personal responsibility for the mortgage.  Most lenders require that there not be a second mortgage or junior liens on the property in order for the homeowner to do a deed in lieu.  A deed in lieu of foreclosure may have a slightly less negative impact on the homeowner's credit score than a foreclosure.

Can I simply deed my property to someone else and avoid the hassle?

Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit.

Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property.

Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.