Foreclosure
Foreclosure Options
You have missed some payments on your mortgage you received a loan default letter and now you are worried about your home being foreclosed. Sometimes that may be unavoidable, but in New York State there are options.
What is a Loan Default Letter? A Loan Default Letter is sent from a lender to a borrower when the borrower falls behind on their payments. This letter can often be the last notice before the lender takes legal action to regain the money they are owed.
The first thing you should always do is hire an attorney.
Your attorney will explain to you the various options and what steps you should take. Below are some potential options:
Foreclosure
The least favorable is a foreclosure, which means the lender on your property files a lawsuit against you in court to enforce its lien. When you fail to make payments on the loan.
There are a number of steps in the foreclosure process:
First off, the lender must wait until you are 120 days late in your payments. This period of time is allowed so as to give you some breathing room. During which may try to refinance the loan or exercise other options.
Everything boils down to the terms of the mortgage agreement you made with the bank when you took out the loan. In a notice or breach letter, your lender maybe required to letting you know that your loan is in default and that they are accelerating the loan. This means you lose your right to continue paying in monthly installments and the loan becomes due and payable in full.
The notice will typically state that you are in default , tell you how to cure the default giving you at least 30 days to do so. And if you fail to cure it within that period of time you may be facing a foreclosure action. Again it all depends on the language in the original mortgage agreement.
New York requires every lender foreclosing on a residential mortgage of an owner occupied home top send a 90 day pre-foreclosure notice prior to commencing foreclosure. This notice must give you information about how to cure the default. It will also give you a list of government approved counseling agencies to help you. The 90 day period runs concurrent with the 120 day period the lender has to wait.
After the 90 days is over, the lender is allowed to go to court and file a complaint against you to foreclose on your property. You will have 20 to 30 days to answer this complaint. That depends on how the complaint was served to you. It is very important to answer the complaint within the allowed time. So again, we cannot stress enough the need for you to hire a qualified attorney. Who is experienced in handling foreclosure law.
There is a new law, that requires the lenders attorney to file what is called a Certificate of Merit or Attorney Affirmation. This document states that the attorney has reviewed all necessary documents related to the mortgage and that the plaintiff is the creditor who is entitled to enforce its rights under those documents. All key documents must be attached, which include the mortgage, promissory note, any extensions or modifications and any assignments of the mortgage. Unless those documents were already attached to the Summons and Complaint.
Within 20 days of serving the complaint on you, the lender’s attorney maybe required to file an affidavit of service with the court.
Within 60 days after the affidavit of service is filed, the court will hold a mandatory settlement agreement conference.
The mandatory settlement conference is meeting between the defaulting party and the lender to try and reach an amicable resolution to foreclosure proceeding.
ALTERNATIVES TO FORECLOSURE
Deed in Lieu of Foreclosure
A deed-in-lieu of foreclosure is an arrangement where you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process.
A deed-in-lieu of foreclosure may help you avoid being personally liable for any amount remaining on the mortgage. If you choose this option, a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor can help you plan your next steps.
Loan Modification
A loan modification is a change made to the terms of an existing loan by a lender. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three.
Such changes usually are made because the borrower is unable to repay the original loan. Most successful loan modification processes are negotiated with the help of an attorney or a settlement company. Some borrowers are eligible for government assistance in loan modification.
Government Programs
Mortgage loan modifications are the most common type because of the large sums of money at stake. Government-sponsored loan modification assistance is still available to some borrowers. These include:
- Fannie Mae, the government-sponsored mortgage company, has a program called Flex Modification.
- Mortgages insured by the Federal Housing Authority may be eligible for modification through the agency’s FHA-HAMP program.
- Military veterans can get mortgage delinquency counseling through the U.S. Dept. of Veterans Affairs.
Applying for a Mortgage Loan Modification
A mortgage loan modification application will require the details of a borrower’s financial information, the mortgage information, and the specifics of the hardship situation.
Each program will have its own qualifications and requirements. These are typically based on the amount the borrower owes, the property being used for collateral, and specific features of the collateral property.
If a borrower is approved, the approval will include an offer with new loan modification terms.
Short Sale
A short sale is when a mortgage lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner. The lender forgives the remaining balance of the loan.
Buying a home through a short sale is different from buying a property at a foreclosure auction, or one that is actually owned by the bank, known as an REO or real estate owned property.
A short sale occurs only with the lender’s permission when a home’s value has declined, and the mortgage holder owes more than the home is worth. In this scenario, the homeowner has negative equity and might need to get rid of the home.
Short Sale vs Foreclosure
A short sale is not the same as a foreclosure. In a foreclosure, the lender repossesses the property and then tries to sell it for enough to recover its costs. In a short sale, a lender accepts that it won’t recover its outlay, and it’s considered the better option than dealing with the red tape involved with foreclosure and then going forward with handling a separate transaction.
Should I sell my home through a short sale?
Whether you should proceed with a short sale depends on your individual situation and what’s likely to work best for you in the long run. If you can’t afford your mortgage, and if home values have dropped in your area, you might not have much of a choice. A short sale might be able to help you preserve your credit to some degree by helping you avoid a foreclosure on your record.
How long does a short sale take?
A short sale can take as little as a few weeks or as long as several months. Because short sales are complicated transactions, they tend to be more time-consuming. Plus, the original lender needs to review the short sale offer to determine whether they will accept it. If the lender believes they can make more money by going through the foreclosure process, they might not accept the short sale proposal.
You can reduce the time it takes by working with a real estate agent that has experience with short sale transactions. A short sale is one real estate deal where you really need to get help from an experienced agent or attorney. Not all real estate agents know how to handle a short sale, so make sure you consult with one who can demonstrate special training and a good track record. Having a real estate agent on your side who knows how short sales work — and who has negotiated others — will increase the chances of closing the deal.
More Information
For more information on how we can help simplify the process, contact us.
