Mortgage Help is Available for Debtors Who Are Determined to Avoid Foreclosure

Buying a home is a big commitment. It can be a solid, well founded decision made in a time of stability. Then all of a sudden a person is a home owner, is living the American Dream. Having a great house, is the ultimate symbol of having become a successful and mature adult. Then something happens and there is a change in a person of family’s income. Payments are harder to make and sometimes impossible. By the time they approach the lender, the bank or mortgage company has already filed foreclosure paperwork and set a sale or court date. There are still options for the borrower.

One of the best options is the one created by the Obama administration in conjunction with the Department of Housing and Urban Development (HUD). Loan modification is now mandatory. If a borrower who defaults or who is having trouble requests modification and meets a set of criteria about the amount remaining to be paid, the date the mortgage was entered into (before January 1, 2009), a proven hardship and the ability to continue making payments of some sort, banks or mortgage companies are now required to work with them. The mortgage must be modified to a level where the payments amount to less than 31% of the debtor’s gross income. If they cannot make payments at all due to lack of any income, there is no mandatory modification. If the debtor does not meet the federal requirements, they can still approach the bank on a personal level and explain the hardship and work out a new plan or an extension with the bank. Most lenders will renegotiate if approached before the situation has gotten beyond repair. They do not want to go through foreclosure and it is in their best interest to keep the loan with the current borrower.

Another institution that is able to help a borrower in or near foreclosure is the applicable local court system. Usually a court is specified in the mortgage agreement as having jurisdiction. If foreclosure is filed, either party can dispute it in court, especially if it is a judicial foreclosure state. The borrower can then bring money to fix the past due amounts to the court and ask for a dismissal of the foreclosure. Or they can ask the court to give them an amount and a date by which they can fix the problem with a lump sum. If they do not have access to the full amount, the court can also renegotiate and modify the loan with the parties in front of it instead of allowing the foreclosure to go forward.

If there is no remedy with the court or bank and coming up with the past due funds is not an option, the debtor can seek out a separate institution to purchase the property at a value which is not likely to satisfy the money owed on the loan, but may be an acceptable substitute for all the parties to avoid the time and money involved in foreclosure. If they do find such an institution that is willing to get the discounted property for a lump sum, then the debtor and the new purchaser must put together a short sale proposal and take it to the mortgage company for approval. Most mortgage companies are likely to agree to stop the foreclosure proceedings in the event of a short sale to cut their losses and save on all of the fees and time involved in executing the foreclosure and auction.

Any of these options are preferable for all parties to foreclosure, but the debtor who has defaulted has the burden of finding and negotiating these substitutions in order to salvage their credit and still have the choice to try again at home owning in the future.

By Susan Redfield