If you are facing mortgage foreclosure, you do have options. There are two sides to foreclosure defense – the procedural track before the Court and the dealings with the lender on workout options. Here, we are focusing on the workout options, but a borrower should note that there are many procedural steps within the foreclosure action that a lender needs to take. Borrower must answer the foreclosure action in order to participate in lawsuit and make issue of any procedural missteps. This can get a borrower more time or provide leverage for a workout option.
If a borrower wants to work something out with their lender, they first need to decide if they want to keep their house or let it go in order to evaluate their options. This is a decision a borrower needs to make based on many factors, such as the value of the home as compared to the loan, whether the monthly payments as modified will be affordable, as well as personal considerations.
If a borrower wants to keep a home, they can seek to reinstate the loan with a lump sum payment of arrears, or through a payment plan where the arrears are paid over a short period of time (several months). These are good options if the hardship causing the default has passed and borrower can afford such payments. Another retention option is a modification where the lender agrees to change the terms of the loan in order to lower the monthly payments. Typically, this means reducing the interest rate or extending the life of the loan, rather than reducing the principal balance. A borrower will need to apply to their lender for a modification in a process that is similar to the original loan application process. A borrower will need to provide proof of income (i.e. tax returns, pay stubs, bank statements, statement of benefits etc.) to demonstrate the need for a modification and an ability to afford the modified payments. However, lenders are not required to modify loans and Courts cannot order lenders to modify loans.
If a borrower does not want to keep the house, they can seek a short sale or a deed-in-lieu of foreclosure. In a short sale, borrower finds a buyer and seeks approval from the bank to accept a payoff on the loan that is less than what is owed. If borrower can sell the house for more than is owed then it is not a short sale and is not subject to lender’s approval. In a deed-in-lieu, borrower deeds the house to the bank in satisfaction of the loan debt. Any other liens on the property need to be cleared up for a lender to accept a deed-in-lieu.
Remember, you own your home and are entitled to use and possession thereof until the home is sold at auction.
Beware of scams. If someone guarantees you that they can “definitely” save your house or lower your monthly payments, or if they tell you that you can have your house free and clear, they are lying.
Do not rely on the advice of the bank, the process server who served the foreclosure complaint, or friends at cocktail parties. A borrower facing foreclosure should talk to an attorney for guidance through this complicated and sometimes emotionally wrought process.
Alanna C. Iacono is an associate practicing real estate law, concentrating on commercial and residential real estate transactions, landlord-tenant, foreclosure and condominium/HOA law. She can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.