No word strikes greater fear in a homeowner’s heart than foreclosure. More and more people are behind on their mortgage payments or are about to be. According to RealtyTrac, there are more than one million U.S. homeowners in some stage of foreclosure as of June, 2014.
The foreclosure rate in Pennsylvania is 1 in every 1,244 homes, although the Top 4 counties have substantially higher foreclosure rates:
- Monroe County – 1 in every 333
- Northhampton County – 1 in every 408
- Delaware County – 1 in every 681
- Philadelphia County – 1 in every 805
Reviewing the current stat’s on foreclosure, I was surprised to see that the affluent suburbs of Thorndale, Chester County is 1 in every 315 homes, which is not far behind the more economically disadvantaged City of Darby, which is 1 in every 244 homes. The reality is foreclosure affects every US. Homeowner everyone should have a strategy to deal with it.
The Big Picture: Foreclosure
Foreclosure is the legal process by which a creditor with a lien on real estate forces a sale of the property in order to collect on the lien. Foreclosure typically occurs when a homeowner defaults on a mortgage.
Pennsylvania and New Jersey are Judicial Foreclosure states, which means that foreclosures are conducted through the courts. This guarantees that certain safeguards are taken before real property can be taken from the home owner and sold by the lien holder, typically a bank or credit union.
Options Available to Home Owners
- Reinstate Your Mortgage
- Negotiate a Workout
- File For Chapter 13 Bankruptcy
- File for Chapter 7 Bankruptcy
- Take Out a Reverse Mortgage
- Fight the Foreclosure in Court
Options Available to Home Owners
1. Reinstate Your Mortgage
If you have enough cash, you can “reinstate” your mortgage by making up all the missed payments plus fees and interest the lender charges you. This means one lump sum payment to catch up on all the late mortgage payments. Keep in mind that lenders that don’t want to foreclose – it’s a hassle for them, especially since real estate values have fallen and banks don’t want to be saddled with real estate that may be hard to sell.
2. Negotiate a Workout
If you want to keep your house, your best approach is to start negotiating with your mortgage servicer as quickly as you can. You can negotiate directly or through a nonprofit housing agency. These counselors will help you, for free and explore possible remedies and negotiate a workout with your lender.
You may be able to get:
- Forbearance: which is temporary relief from having to make your monthly payments. Under a forbearance agreement, the mortgage servicer or lender agrees to reduce or suspend your mortgage payments for a period of time. In exchange, you promise to start making your full payment at the end of the forbearance period, plus an extra mount to pay down the missed payments. Forbearance is common when someone is laid off or call to active military duty for a short period of time and cannot make any payments now but will likely be able to catch up soon. Forbearance for three to six months is typical.
- Mortgage Modification: is designed to lower your monthly payments over the long term. This may result in a reduction of your mortgage interest rate to the current market rate; conversion from a variable rate mortgage to a fixed-rate mortgage; extension of your loan repayment period from 20 to 30 years. All these options will reduce your monthly mortgage payment.
- Government Back Mortgages: have special workout options if your mortgage is owned by Fannie Mae; Freddie Mac; FHA; HUD; RHS or the VA. The most common program utilized is the Home Affordable Modification Program (HAMP). HAMP can help bring your monthly mortgage payment to no less than 31 % of your gross (before tax) monthly household income by reducing your mortgage interest rate; extending the loan term or deferring a portion of the principal amount you owe. This HAMP program was funded with 29 billion dollars in 2009 and only 4.7 billion dollars has been spent to date helping 1.1 million homeowners obtain a permanent loan modification program. Another available program is the Home Affordable Refinance Program (HARP). HARP helps underwater U.S. homeowners refinance their existing mortgages with new, lower mortgage rates. More than 3 million people have used HARP since its inception in 2009. HAMP and HARP expire on the last day of 2015.
If you can refinance at a better rate and pay off your old loan, you can start fresh. Unfortunately, refinancing is tough these days unless you have equity in your house.
4. File For Chapter 13 Bankruptcy
Chapter 13 is a akin to a forced loan modification. In case a bank refuses to work with you, you can file a Chapter 13 bankruptcy to save your home, which allows you up to 5 years to re-pay the mortgage arrears. Chapter 13 also has the added benefit of erasing your unsecured debt at the end of the plan. In some situations you can get rid of a second or third mortgage entirely, if the market value of your house is below the amount of your first mortgage. This is referred to as a strip off and it’s the only stripping allowed in bankruptcy court.
5. File for Chapter 7 Bankruptcy
If you are current on your mortgage but have no room in your budget to continue making your monthly mortgage payments and all your household bills then going through Chapter 7 bankruptcy can make your mortgage more affordable – and prevent foreclosure in the long run. Chapter 7 bankruptcy will wipe out your unsecured debt – all your credit cards, personal loans, medical debts, and most money judgments can be erased. This will free up the income you were using to pay down those debts so you can put it toward your mortgage payments.
6. Take Out a Reverse Mortgage
A reverse mortgage is available for home owners over the age of 62. It’s a way to tap into the equity of your home without selling the house. The loan must be repaid only if you sell your house, or, after death, when the house is sold and the lender is repaid from the proceeds. The down-side of a reverse mortgage is that they take part or all of the equity leaving less value for you to pass on at your death.
7. Fight the Foreclosure in Court
If you can show that the foreclosing party violated a procedural rule for filing a foreclosure or otherwise made a mistake then you may be able to derail the foreclosure by fighting the foreclosure in court.
A consumer attorney will file defensive pleadings such as preliminary objections attacking the validity of the complaint in an attempt dismiss the foreclosure case all together.
How to Get Information About Mortgage Errors
A federal law called the Real Estate Settlement Procedures Act (RESPA) provides a new way for you to challenge common kinds of errors such as improper charges, improper calculation of interest, or the failure to credit payments properly.
Your first step is to send the mortgage servicer what’s known under RESPA as a Qualified Written Request (QWR) identifying the borrower; account and the information you’re after.
A servicer must acknowledge receipt of your letter within 5 business days. They have another 30 business days to comply with your request. RESPA Remedies include actual damages; costs; and attorney’s fees. The statutory damages are up to $2,000 per violation.
Options to Walk Away
- File Chapter 7 and Surrender the Real Estate.
- Short Sale.
- Deed in Lieu of Foreclosure.