SELLERS
Are You a Homeowner Struggling to Make Your Payments?
The possibility of losing your home because you can’t make the mortgage payments can be terrifying. Regardless of the reason for your current financial situation, there are plenty of free options available. The U.S. Treasury department and the Department of Housing and Urban Development (HUD) offer various free mortgage assistance programs to homeowners facing foreclosure. Depending on the type of mortgage you have, and whether you wish to keep your home, HUD can provide you with a program to best suit your needs.
When seeking mortgage relief assistance, it is important to identify the best option for you and to avoid foreclosure scams. Whether you are seeking a loan modification, a refinance, or even a short sale, you should be aware of foreclosure prevention scams. Never pay any up-front fees to any third party purporting to provide these services. To learn more about free homeowner assistance programs, you are encouraged to visit HUD’s website.
The Obama Administration’s Making Home Affordable Program is the most expansive relief program geared towards helping homeowners avoid foreclosure. The program offers an array of options that enable many homeowners to lower their monthly payments and stay in their homes. Alternatively, if home ownership is no longer affordable or desirable, the program provides a way out of the property without having to go through the foreclosure process. Even if you are unemployed, or you owe more on your mortgage than your home is worth, the program may be able to help you.
The first step to avoiding foreclosure is to identify which program is best for you. A brief description of the government-sponsored programs is listed below. These programs, however, are constantly changing and you are encouraged to visit the Making Home Affordable Program website for the latest program requirements.
Refinance
Homeowners who were previously unable to refinance due to decreased property values may qualify under the Home Affordable Refinance Program (HARP). Eligible candidates include those with a first mortgage lien that does not exceed 125% of the current market value of the property. For example, if your property is worth $200,000 but you owe $250,000 or less, you may qualify. The current market value of your property will be determined after you submit the refinance application. The refinance program even applies to homeowners with two mortgages as long as the total amount due on the first lien mortgage is less than 125% of the value of the property. Program eligibility depends on the following requirements:
- The lender that has your junior lien mortgage must agree to remain in a junior lien position
- You must be able to demonstrate your ability to meet the new payment terms on the first lien mortgage
If a HARP refinance is your best option, you should contact your current mortgage lender or call the Homeowner’s HOPE™ Hotline at 1-888-995-HOPE (4673) and ask for a Home Affordable Refinance application. It will greatly help your lender if you gather the following information and documents before you call:
- Information about the monthly gross (before tax) income of all the homeowners on your loan, including recent pay stubs if you receive them, or documentation of income you receive from other sources
- Your most recent income tax return
- Information about any junior lien mortgage on the house
- Account balances and minimum monthly payments due on all of your credit cards
- Account balances and monthly payments on all your other debts such as student loans and car loans.
Please note that homeowners who are delinquent on their mortgage may not qualify for HARP. Homeowners who are currently delinquent, or are more than 30 days overdue during the past 12 months, generally do not qualify. Regardless, you should always contact your loan servicer to see if a HARM refinance is an option for you.
Loan Modification
If you are delinquent on your mortgage and intend to keep your home, a Home Affordable Modification Program (HAMP) loan modification may be your best option. The program was put in place to make it easier for a borrower to continue to make their monthly mortgage payments and keep their home. HAMP’s objective is to provide struggling homeowners with mortgage relief and avoid foreclosure by modifying your existing mortgage. Unfortunately, HAMP has been widely criticized as a failure due the the difficult program requirements. You may qualify for a HAMP loan modification if:
- You occupy the house as your primary residence
- You obtained your mortgage on or before January 1, 2009
- You have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income
- You owe up to $729,750 on your home
- You have a financial hardship and are delinquent or in danger of falling behind
- You have proof of sufficient income to support the modified payment
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction
As previously mentioned, HAMP has been widely criticized for the lenders’ unwillingness to participate and due to the rigid income requirements. As a result, HUD continues to change the eligibility criteria in an attempt to assist more homeowners. If you think you qualify for HAMP, contact us today or call the Homeowner’s HOPE™ Hotline at 1-888-995-HOPE (4673) for a HAMP loan modification application.
Short Sale
The HAFA Short Sale or Conventional Short Sale. For those homeowners who do not qualify for a refinance or a loan modification, or simply prefer to sell your home, a short sale may be the best option. While getting rid of your home by way of a short sale or foreclosure will likely damage your credit score, a short sale is generally the least damaging option. In a short sale, the homeowner can negotiate the final settlement terms with their lender, as opposed to a foreclosure, where the bank simply repossesses the home and holds the homeowner liable for the total amount owed on the original loan.
Furthermore, a short sale does not require any legal notices to be published in the local newspaper and can be handled in private with the lien holder. As a result, a short sale offers the homeowner a relatively quick and efficient resolution to an otherwise untenable financial situation. Most important, when properly negotiated, the short sale provides the homeowner the opportunity to walk away from the property without having to pay back the loan deficiency as is required had the bank foreclosed. Depending on your loan type, homeowners will pursue either a HAFA short sale, for non-government owned mortgages or the specific lender’s proprietary short sale program. For government-owned mortgages, homeowners can pursue either the Standard Freddie Mac Short Sale or the Fannie Mae Short Sale. In either type of short sale, lenders are required to agree to waive their rights to seek a deficiency judgment following a short sale.
Home Affordable Foreclosure Alternatives Program (HAFA)
If your mortgage payment is unaffordable and you are interested in getting rid of the home, you may be eligible for a HAFA short sale. The benefit of a HAFA short sale is that the lender must agree to release the homeowner from any future debt obligations as well as completely release you from the total amount owed on your mortgage. Thus, the homeowner will not have to pay back the loan deficiency. Keep in mind, however, that even if the lender forgives the loan deficiency, the short sale may have tax consequences. HAFA participants also receive $3,000 in relocation assistance from their lender. You may be eligible to apply for a HAFA short sale if:
- You live in the home or have lived there in the last 12 months
- You have a documented financial hardship
- You have not purchased a new house within the last 12 months
- Your first mortgage is less than $729,750
- You obtained your mortgage on or before January 1, 2009
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction
Effective 2013, HAFA is only available for mortgages that are not owned or guaranteed by Fannie Mae and Freddie Mac. A list of participating mortgage servicers can be found here. Eligibility criteria are for guidance only. It is important to note, however, that HAFA only applies to first lien holders. Thus, if you have two mortgage liens on your property, you may not qualify for a HAFA short sale if your second lien holder doesn’t agree to the payoff terms presented by the first lien holder. Please contact us today to find out if you qualify for a HAFA short sale.
Conventional Short Sale
If you have a government-owned loan, or do not qualify for a HAFA short sale, you can still apply directly to your lender for a conventional short sale. Homeowners can find out online whether they have a Fannie Mae-owned mortgage or a Freddie Mac-owned mortgage. All lenders have specific short sale requirements and you can determine your short sale eligibility ahead of time by following the Fannie Mae short sale guidelines or Freddie Mac short sale guidelines depending on which entity “owns” your mortgage.
Regardless of your loan type, all lenders and servicers require the borrower to have experienced some type of financial hardship. If you determine that you have a lender-accepted hardship, you most likely qualify for a conventional short sale. The next step would be to list your home for sale with a qualified short sale real estate agent. Please contact us today to for a free short sale consultation and we can refer you to an an experienced short sale agent if you decide to pursue a short sale. If you are still uncertain whether a short sale is right for you, please visit our Short Sale FAQ page for more detailed information.
Bankruptcy
Bankruptcy is generally reserved for those individuals who prefer to keep their home but don’t qualify for a refinance or loan modification. Bankruptcy is extremely damaging to your credit and will generally affect your ability to borrower money for the next seven to ten years. One of the few advantages of bankruptcy is that it may enable you to stop the foreclosure process and remain in your home. Keep in mind, however, that most lenders will agree stop any foreclosure actions while considering a short sale request. Depending on your financial situation, you may consider bankruptcy as an alternative to foreclosure.
Chapter 7 Bankruptcy
Most people use Chapter 7 bankruptcy only to stop foreclosure and as a last resort. Only in rare cases can a Chapter 7 bankruptcy help keep the house over the long run. Chapter 7 places all of the homeowners non-exempt assets with a trustee in order to discharge all debts. Exemptions vary by state. In most cases, however, the debtors possess so few assets that they may keep what little they do own while having all of their debts wiped out completely.
Chapter 13 Bankruptcy
Only a Chapter 13 bankruptcy can stop a creditor from foreclosing on a delinquent debtor over a period of years. Chapter 13 allows the homeowner to force the lender to accept a long term plan which allows them to keep their home. The court, however, retains the right to scrutinize the debtor’s finances during the life of the reorganization plan. The trustee outlines how the debtor will pay creditors over a three to five year period. Chapter 13 is unique because it does not require the lender to agree to the plan of action. For a Chapter 13 to work, payments must be kept up by the homeowner or the court protection will cease and the house will go to foreclosure.
In most cases, bankruptcy should be utilized as a last resort. While you may file bankruptcy on your own, you are encouraged to speak with a qualified, experienced bankruptcy attorney in order to best assess your situation. Contact us today and we will gladly refer you to a qualified attorney who can assist you with your situation.
Foreclosure
Unfortunately, many homeowners ignore their dire financial situation for many months while their home falls into foreclosure. Allowing your home to go into foreclosure without first attempting to reach a settlement with your lender is a huge mistake. As mentioned above, when the bank forecloses on the property the ultimately sell the home at auction. Following a foreclosure, the homeowner is liable to the bank for the difference between the auction sale price and the total amount owed on the mortgage. This can amount to hundreds of thousands of dollars. Not to mention, your credit score will be negatively impacted and you won’t be able to get credit for five to seven years.
Even if you receive a foreclosure notice from your lender, it is not too late to act. You will only make your situation worse if you fail to take any affirmative action against the lender. At the very least, it is advantageous to contact the foreclosing lender to explore your options. Many lenders offer financial incentives to homeowners who are willing to vacate the property without having to go through the foreclosure process. One of those options is a short sale. The other option is commonly referred to as a deed in lieu of foreclosure.
A Deed in Lieu of Foreclosure
When a lender agrees to “a deed in lieu of foreclosure,” the homeowner agrees to give the property back to the lender without having to go through the foreclosure process. In some cases, the lender may agree to forgive the deficiency amount owed in consideration for not having to go through the foreclosure process. The deficiency is the difference between the sale price and the total amount you owed on the property. In most cases, however, the lender will pursue a deficiency judgment against the homeowner even if the homeowner agrees to a deed in lieu of foreclosure. Keep in mind, a deed in lieu may not be an option for you if you have multiple loans or secured debt on your home. For those homeowners who do not qualify, it is always advisable to contact your loan servicer as soon as possible to discuss any foreclosure alternatives available to you.
You Are Behind On Your Mortgage Payments: What Next?
If you are having trouble making your payments, contact us today for a free consultation. Otherwise, you should immediately contact your loan servicer to discuss your options. The longer you wait, the fewer options you will have. In addition, you can go to the HUD website and they will provide you with free advice. If, however, you decide to use a third party mortgage assistance relief service, be sure to do your homework and verify the company with whom you are working. Never pay any up-front fees and be aware of mortgage scams. If you decide that you want to pursue a short sale, please contact us for a free consultation. If a short sale is not in your best interest, we will gladly refer you to an attorney or government-sponsored program that best fits your needs.
About the Author: Andrew Coppo of Greater Boston Short Sales, LLC (GBSS) is Massachusetts’ leading short sale negotiator. GBSS assists buyers, sellers, real estate agents and attorneys with getting their short sales closed. Contact us today if you are a homeowner facing foreclosure or a Realtor seeking assistance with a short sale transaction. GBSS is a MARS provider. Please read our disclaimer HERE.
