You Have Options Before Foreclosure

If you just need a little time to get back on your feet, your lender may agree to a loan workout plan to temporarily reduce or suspend your payments, allow you to repay what's past due in monthly installments, or provide some other type of relief. 

Your lender may agree to a loan modification to premanently change one or more of your loan terms. A loan modification may involve a reduction of your interest rate, an extension of your loan term to 40 years, a reduction in your loan balance, or other chnages to the terms of your loan to make your mortgage payments more affordable.

If the unpaid balance is more than the property is worth "underwater". Even so, your lender may voluntarily agree to a short sale by accepting a loan payoff of less than what's owed. As with foreclosure, a Short Sale may affect your credit, tax liability, personal liability, and pose other consequences. If, however, your property is one-to-four residential units, your lenders are generally prohibited from holding you personally liable for any deficiency judgement under California Law and everything is negotiated. Doing a short sale also allows you to take a proactive approach to dealing with your distressed loan. You will need to prove Hardship to the lender and get an approval letter from the lender to allow it. You may be able to make some money out of the sale or break even depending on how much you owe. 

1. Homeowner has to be in good standing with good credit to be approved.

2. The home has to be in good financeable condition. 

3. Interest rates may be higher than your current interest rate, which may not make sense to refinance. 

Forbearance Agreement- Bank allows a pause on payments for 30-120 days. At the end of period, the bank requires payments to be caught up. It was common during Covid, but not as common anymore. Non-Covid Forbearance must have a reason (like the house is being sold) and talk to someone at the bank who is a decision maker. 

A dead-in-lieu of foreclosure is a voluntary agreement between a borrower and lender for the borrower to give title to a property to the lender in full satisfaction of the loan secured by that property. Your lender may look favorably at a deed-in-lieu of foreclosure because it will not have to spend time and money pursuing foreclosure. 

Bankruptcy is a federal court proceeding for settling your debts with your creditors under a judge's supervision. If you face foreclosure, the filing of a bankruptcy case may provide an "automatic stay" to temporarily stop the foreclosure proceedings. If, however, you file for liquidation under Chapter 7 of the Bankruptcy Code, the court may, in time, lift the automatic stay to allow the mortgage lender to resume its foreclosure proceedings. If your file Chapter 13, you may be able to keep your property, but you must generally repay the overdue amount in a three to five year plan along with your reglar mortgage payments. If you need a bankruptcy lawyer or any references + resources, you can contact me. For more information on bankruptcy go to www.uscourts.gov/services-forms/bankruptcy

There are many other alternatives to foreclosure. You may be able to borrow money from friends or family. You may be able to supplement your income by renting out a bedroom or space in your home or getting a second job. You may qualify for a business loan, personal loan, or other types of financing. If your mortgage lender fails to follow proper foreclosure procedures, you may be able to file a lawsuit seeking an injunction to stop the foreclosure process or other relief. We may also be able to come up with some other alternatives to foreclosure not mentioned here. For any alternatives carefully consider their pros and cons, including possible credit, tax, legal, and other consequences.