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Avoid home foreclosure. Know your options. When homeowners find themselves struggling financially, the biggest headache is likely to be difficulty in making their monthly mortgage payment.
Maybe this situation applies to you. Before you panic and decide to sell your home, you should to do some online research. This blog will talk about your available options.
The real estate market, like many other financial markets, is cyclical which means that times of high corporate profits and economic growth are often followed by periods of consumer nervousness and decreases in spending.
This holds true for housing prices as well. If you find yourself in such a situation, be it through job loss or family medical emergency and you cannot afford your mortgage, you need to be aware of the financing options available to reduce the risk of losing your home.
Some examples are listed below.
Loan Modifications: Everyone remembers the housing bubble of 2005-2006 that led to tumbling housing prices shortly thereafter. This situation was especially pronounced in Florida and other southern US states. Home prices had risen so high but then came to a halt causing American home values to quickly fall dangerously low.
This led to a credit crisis, which made it difficult for many homeowners to pay their monthly mortgages causing them to default on these payments. When this happened, many homeowners sought relief in the form of loan modifications.
A loan modification means that the terms of your mortgage repayment are permanently changed, thus, making it easier for you to reduce your monthly payment to a more affordable amount. Whether the modification is structured to reduce the borrower’s interest or principal obligation or both, adjust the rate from variable to fixed, or extend the term of the loan, all depends on the borrower’s qualifications under the U.S. Housing and Urban Development (HUD) regulations.
The tough part here is qualifying for such a modification and understanding how the process works. These amended payment terms are often considered a more preferred approach to foreclosure as it keeps the homeowner in his home and allows at least partial payments to continue flowing to the lender.
This process can be cumbersome to navigate through so it is best not to go it alone. Firstly, dealing with government officials can be extremely frustrating and you may already have your hands full in trying to rearrange your household finances.
Secondly, if incorrect information is provided in your mortgage loan modification or if you do receive a modification but still cannot make the payments, it may complicate your case and you could possibly lose your home.
When is it better to do a short sale? The reason why the housing market can experience a slump if often twofold.
There is an oversupply of new homes and an environment develops of diminishing disposable income of prospective home buyers. These situations place downward pressure on home prices. A home’s market value could fall to a level that is below the amount which the homeowner owes on his mortgage. Lenders can either foreclosure on the property or force the homeowner to sell the house.
This is called a short sale. No one wants to be in the position to be forced from his home due to non-payment of his monthly mortgage obligation. This situation should be avoided at all costs as it often forces the family to move out of their home and could diminish the homeowner’s credit rating for years to come, thereby preventing him from obtaining a loan to purchase another home.
If you are unable to continue making payments on your home and you believe that your home is in danger of foreclosure, then you should hire an experienced attorney to guide you through the short sale process. This renegotiation of your debt can be tricky.
It requires you to submit many forms regarding your home that may include appraisal documents, broker opinions, correspondence with junior lien holders, etc. On the flip side, short sales also provide an opportunity for investors who are looking to buy a home for investment purposes at prices below market.
But take note: short sales take a notoriously long time to complete. There are potential approval requirements from second (or higher-tiered) lienholders and figuring out who pays for inspections or appraisals. What is a roadblock for some, can be a buying incentive for others. We’ll talk about using real estate as an investment vehicle in a later blog. For now, do not let the complicated short sale process hinder you from getting back on the road to financial recovery.
Short sale or deed in lieu of foreclosure? Which is the better option for me? Great question.
If priced low enough, you would think that your home would attract multiple buyers quickly. A sale ensues and you avoid foreclosure. You would be back to financial health and then move on with your life. What if that buyer does not materialize and the short sale falls apart? What then?
In such cases, you may be better off obtaining a deed in lieu of foreclosure. It is similar to a short sale but you voluntarily transfer the title of your property to the lender in exchange for his releasing you from the mortgage obligation on your home. In recent years, many mortgage companies were hesitant to take on more property titles than they could handle; in other words, they are in search of cash, not real estate.
The state of New York is another area in which UTFPA has much experience in assisting clients with real estate matters. If you own property in New York and can no longer make payments on your mortgage we can assist you in determining whether you should consider foreclosure or another viable option. Local laws in New York set forth timelines that must be followed before a lender can foreclose on a property.
If you miss a few payments, your lender will send you a reminder letter, often called a Breach Letter, which is an official notification that your loan is in default.
The CFPB (Consumer Financial Protections Bureau) passed laws in 2014 that require a lender to wait until those payments are 120 days delinquent before filing the case in court. This is known as the loss mitigation period and is designed to give you time to explore other ways to mitigate a loss on your property.
These include refinancing your current mortgage, help in dealing with properties that are “under water” (the amount owed is more than what the home is worth), short sales or deeds-in-lieu of foreclosure as discussed above. If a foreclosure does proceed, it takes the form of a judicial foreclosure. What is judicial foreclosure? The lender sues the homeowner in court to initiate the foreclosure proceedings.
A complaint is filed in the county Supreme Court where the property is located and a summons is served to the homeowner that he must answer in 20 or 30 days (depending on whether the summons was served in person or by mail). Avoiding foreclosure is important because in that process, all parties lose out. You lose your home and the lender gets less than he is owed.
It might be advisable to take advantage of federal programs that could allow you to negotiate a repayment plan through your mortgage servicer. Since any type of repayment plan extends the time it takes to repay your loan, it may require permission from the lender.
As you can see, the procedures leading up to a potential foreclosure of a property in the state of New York can be daunting. Consult an attorney who has experience in negotiating more favorable options to foreclosure.
UTF has a group of friendly, experienced attorneys who specialize in real estate and are admitted in several states including New York and Florida. Give us a call to talk about your specific real estate situation.