Your Options
Unless you have a legal defense to the foreclosure, there are 4 general options that you should consider. It usually makes sense to consider them in the following order (but you can consider more than one at a time). You can think of your exploration of each of these 4 options as 1 step in a 4-step.
Plan
Pursue a Workout
Be extremely cautious about working with any person or agency charging you an up-front fee to pursue a workout with your lender. Any such person or agency might be committing fraud.
One of the ways you can reinstate your loan is by working with your mortgage company to fashion a "workout" or "workout plan." Exploring the possibility of a workout is sometimes called "loss mitigation” or “loan mitigation.” The resulting plan is often called a "forbearance" or "repayment" plan. Basically, this is a way for you to reinstate your mortgage over time, without bringing the mortgage current all at once. Often, the lender will ask you to pay a lump sum toward what is owed, then something like 1.5 monthly payments per month for a set period of time. Or, the lender may agree to put your missed payments at the back of the loan. Sometimes, the lender will even be willing to reduce your interest rate.
The sooner you contact your mortgage company to pursue a possible workout the better, because the process of formulating a workout and being approved for one may take a long time. You should ask for the loss mitigation department. Each time you talk with a representative from your lender you should take notes including date, time, name of representative, and what was said, including the next steps.
Get Any Agreement in Writing
Make sure to get any agreement in writing and keep a copy. Understand that most agreements do not lead to the dismissal of the foreclosure case until you have completed the plan. Before agreeing to a proposed workout, make sure you have sufficient income to afford the payments. If you do not, you run the risk of ending up back in foreclosure.
Housing Agency Support
You may want to contact a HUD-certified housing counseling agency to help you pursue a workout. These are nonprofit agencies certified by the United States Department of Housing and Urban Development. They will not charge you a fee.
The Community Partners for Affordable Housing (CPAH) has counseling services available to any Lake County resident free of charge. Currently, CPAH requires all prospective clients to attend a 90-minute education session (exceptions may be made for those with a judicial sale pending within 30 days). Attendees have the option of moving on to individual counseling from there. Classes are offered on weekends and evenings. You may review CPAH’s current schedule on their website or by calling 847-263-7478. Services are offered in English and Spanish.
Lake County Housing Authority (LCHA) also offers counseling services. They have a FREE foreclosure prevention workshop. You can reach LCHA on their website or by calling 847-223-1170. Services are offered in English and Spanish.
Making Homes Affordable
Be aware that a new federal program may help you if you’re having trouble paying your mortgage on your primary residence, if the mortgage was dated before January 1, 2009 and is for less than $729,000. Your mortgage (including principal, interest, taxes, and insurance and associations dues) requires you to pay more than 31% of your current gross income.
Learn About Refinancing
If you can't enter into a workout with your current lender, you may redeem your loan (pay it off) by refinancing it, that is, by taking out a new loan that pays off the current one(s). Realize, however, that the payments on your new loan will most often be higher than your old loan payments, and your interest rate may increase. Before obtaining a refinance, make sure you can afford the new loan, or you will end up back in foreclosure owing even more money than before.It may be helpful to have a HUD-certified housing counseling agency like Community Partners for Affordable Housing (CPAH) or
Lake County Housing Authority (LCHA) review a proposed refinance loan before you sign it.
Caution
Be wary of solicitations through the mail, telephone, or in person by entities that offer to refinance your home. It is best to refinance with a credit union, a bank or finance company you have a good history with, or based on a recommendation from a trusted family member or friend.If you want to save your home and are unable to complete a workout or refinance, you may want to consider filing a chapter 13 bankruptcy. Once you file a bankruptcy, the foreclosure case will be "stayed" (stopped), at least temporarily. When you file a chapter 13 petition, you are asking the bankruptcy court to approve a "plan" where you make monthly plan payments and catch up on your past due mortgage debt in a period of time between 3 and 5 years.
If the court thinks you can afford the proposed plan, it will confirm the plan and give you a chance to make your payments and complete the plan. If the court thinks you cannot afford a plan, or if you do not follow through on your plan payments, or you do not file your bankruptcy properly, your bankruptcy will be dismissed and the lender will go back to foreclosure court. The lender will also go back to foreclosure court if you don't make your ongoing mortgage payments. If this happens, it will increase what you owe to the lender.
Foreclosure Case Lawsuits
When you are sued in a foreclosure case, you will receive many advertisements in the mail. Many will be from bankruptcy attorneys offering to save your home through a bankruptcy. Despite this heavy advertising pressure, realize that a chapter 13 bankruptcy will not work for many borrowers, for example, borrowers who have suffered a permanent loss of income, or who couldn't really afford their homes in the first place. It is only appropriate for borrowers who suffered a temporary setback and who are now in a better financial position. Many chapter 13 bankruptcies fail and end up stopping the foreclosure for only a short time and cost the borrower money they desperately need.
Before Filing for Bankruptcy
Before filing a chapter 13 petition, make sure you have enough income to cover your bankruptcy plan payments in addition to all of your regular monthly expenses, including the ongoing mortgage payments that you will have to make every month.
If you simply cannot afford to keep your home through a workout, refinance, or bankruptcy, you should try to sell your home under the most favorable circumstances possible, so that you can get as much of your equity (money left over after paying off debts) as possible. The best option is to sell your home with an accredited realtor. If you decide to sell your home, put it on the market as soon as possible so you have the maximum amount of time possible to sell it. If you find you are unable to sell the house or think there is little or no equity in the home, your lender may be willing to work with you in the following ways.
Short Sale
In a short sale, the proceeds from the sale fall short of what you owe the mortgage company. Some mortgage companies are willing to accept this and forgive any additional amount you owe on the loan. Be aware that under a short sale you may be liable for taxes on whatever debt was forgiven on the home. The bank may send a 1099 form which states the amount of forgiven debt as taxable income that you must report on your income taxes. Tax law is complicated and changes quickly so, if you don’t have a tax advisor, ask your bank about the tax liability associated with a short sale prior to entering into an agreement. Since negotiating a short sale is a specialized skill with many extra responsibilities, you might consider seeking out a realtor with experience in short sales and foreclosures.
Deed-In-Lieu of Foreclosure
With a deed-in-lieu, you sign over the home to the mortgage company to satisfy the loan. Again, you owe nothing else on the loan. You can sometimes do this before a foreclosure case is filed.
Protecting Yourself
A home in foreclosure will attract many potential scam artists. All sorts of real estate "rescuers" and "helpers" and "brokers" and "advisors" and "investors" will tell you that they will help you save your home, when all they are looking for is a fast buck. In many cases they are trying to steal your home, or the remaining equity in your home. Keep an eye out for "Mortgage Rescue Fraud Scams" which usually come in 2 forms.
- Phantom Help: These come in the form of solicitations promising to help you get out of your foreclosure if you pay preliminary fees. The solicitors have no intention of stopping the foreclosure and will lead you on until it is too late for you to take any action yourself.
- Sale-Leaseback or Buyback Agreement: In this type of agreement, a "rescuer" will propose that you sign over your home to them or another "investor," pay rent, and later buy back the home, usually after a year. The rescuer has no intention of having you buy back your home, but instead intends to take the equity from your home. You could lose your home and your equity and face a fast-track eviction (since you are no longer the owner of record). In most cases, it is better to sell your home at a fair market rate and keep the equity for yourself, rather than enter into one of these agreements.
Here are a few things to consider before exercising your options:
- Do not respond to any solicitations that come through the mail, telephone, or in person. Also do not respond to any posters on any poles or bus stops that offer foreclosure help. If you really need help, be proactive, seek good recommendations, and reach out for help.
- If you do not speak English, bring a trustworthy translator to every meeting you have with any agency. You also have the right to have the documents explained to you in your own language.
- Bring your own attorney to any signing to make sure everything is processed legally and you understand what you are signing.
- Do not feel pressured to sign or give money to anyone promising to help you.