Foreclosure is the legal process by which a lender can take your home for failure to make payments. The prospect of losing one’s home is devastating. However, there are options available to a homeowner who has fallen on difficult times. All does not have to be lost, but don’t wait until it’s too late. The foreclosure process takes at least four months. If you wait until the day before the foreclosure sale, your options are limited. Don’t ignore the letters from your lender. As soon as you know you are going to miss a payment, you should consider your options.
The first step is to analyze the situation. Is the problem temporary or long-term? Is keeping the home really an option? Depending on the particular situation, one or more of these options may be available:
Forbearance: A lender sometimes may allow a borrower to reduce or suspend payments for a short period of time if the borrower can show that the problem is temporary and will be able to catch up with payments in the near future.
Repayment plan: A lender may also agree to allow the borrower to resume making the regular payments and additionally make payments on the past due amounts. In cases where the lender will not agree to a repayment plan, a Chapter 13 bankruptcy can force the lender into such a payment plan.
Sale: Lenders usually agree to allow a borrower a specific amount of time to find a buyer for the property. Lenders would rather allow you to find a buyer than incur the cost of foreclosure and taking the property just to turn around and sell it themselves. However, they will wait only so long and then proceed with foreclosure.
Short Payoff: If the current value of the home is not enough to pay off the outstanding balance on the loan, a lender may agree to take less than the full amount owed. Again, lenders want to avoid taking the property and having to sell it themselves.
Deed in lieu of foreclosure: If after making an effort, the borrower still can’t sell the property, the lender may agree to take the property back and forgive the debt. However, this is unlikely if there are other liens on the property, such as tax liens, judgment liens, child support liens.
A word of caution: If you are forgiven debt, the amount of debt forgiven is considered taxable income. That means you will have to report that amount as income in your tax return. This is not the case if the debt is discharged in bankruptcy.
For more information regarding these and other related issues, please contact Susana B. Tolchard at 661-287-9986.