OPTIONS FOR BORROWERS FACING FORECLOSURE

OPTIONS TO KEEP/STAY IN PROPERTY

General Options

1.            Cure – Reinstatement.  Once you are in default, you have a legal right to “cure” the default, which is also called “reinstatement” of your loan.  This means bringing your loan current with the lender.  Borrowers have basically two separate time periods within which to cure a default.  The first time period is that which is set forth in the note and deed of trust.  The second time period for reinstatement commences after the Notice of Default has been recorded.  This time period is derived from state law.  In California, the borrower’s statutory reinstatement right expires five business days prior to the date of the Trustee’s Sale or any postponement there.

2.          Conventional Refinance – At all times before the foreclosure auction actually takes place and the property sold to a third party or reverts back to the lender, the borrower has an absolute right to pay off the loan that is in default.  This right extends up until the gavel falls at the auction.  This may mean refinancing with a new lender, providing a new loan to the borrower.  Practically speaking, unless you, the borrower, have substantial equity in the property, it is difficult to secure a refinance due to the fact that you may be behind in payments (lates affect your credit).

3.           Equity Loan – You may borrow against the equity of your property.

Loss Mitigation Options

1.            Forbearance – Lender agrees to temporarily “forebear” from taking further foreclosure action on a defaulted loan.  This is usually done when a borrower can demonstrate the event leading to the default was temporary (loss of a job, divorce, etc.) and they will be able to cure the default within a specified period of time.

2.          Repayment Plan – Lender agrees to allow the borrower to catch up with their delinquent payments over time.  This is usually accomplished by having the borrower pay an extra amount in addition to their regular monthly payment.

3.           Loan Modification – If the borrower can demonstrate that their hardship was temporary but can’t afford to pay an extra amount each month, or they are struggling to make the current payment, lender may agree to modify the terms of the loan.  This may include adding the delinquent amount to the principle or reducing the current loan’s interest rate to reduce the monthly payment.

Options to Sell the Property

General Options

1.            Conventional Sale – Borrower has sufficient equity in the property to market and sell it through the usual markets.

2.          Seller Carry Sale – Seller agrees to carry back a portion of the financing in order to close a transaction and pay off the defaulted loan.

3.           Sell the property “Subject To” – This means seller agrees to sell the property to a buyer “Subject To” the existing financing.   Loan(s) is/are not paid off or assumed.   The buyer is required to bring the loan in default current and continue to make the payments on the loan.  Title to the property is transferred to the buyer’s name.   Note:   A “Subject To” sale could violate the “due on sale” clause of a loan.

Loss Mitigation Options

1.                  Short Sale – Property is sold and proceeds are not sufficient to pay off the loan in full.  Lender agrees to accept this “short sale” and release its lien on the property.

2.                Short Refinance – This is a new option that may or may not be available with your lender.  A “short refinance” occurs in a short sale when the lender agrees to a new refinance loan for a buyer of a property in “short sale”.

3.                 Deed-In-Lieu – Seller/Borrower deeds the property back to the lender before foreclosure is complete.  Lender must agree to take back the property.  NOTE:  This option will not work if there are junior liens on the property and they have to be repaid.

Other Options

1.            File Bankruptcy – Filing for bankruptcy by a borrower automatically and instantly stops the foreclosure.  Please consult with a Bankruptcy attorney for this option.

2.          Military Status – If borrower is a member of the armed services on active duty or extended deployment, they may request a court to temporarily postpone a foreclosure or eviction and even reduce the interest rate on their mortgage.  This is covered in the “Soldiers and Sailors Civil Relief Act of 1941” which is now known as the “Service Members Relief Act”.

3.          DO NOTHING – Foreclosure continues.  Know your options before you take this last resort.  Please don't delay...

It always recommended that you consult with your CPA and real estate attorney for any advice on financial ramifications of Short Sales and Foreclosure.

NOTE:  Lenders are responding more positively to loss mitigation options rather than foreclose on a homeowner.

For assistance in dealing with your lender, please call 925.876.2525.