Foreclosures and Short Sales

If you own a home and are struggling to pay your mortgage loan, you’re not alone. Divorce, loss of a job and unexpected medical bills are among the most common reasons homeowners fall behind on their loan payments. Predatory lending has also victimized some homeowners by putting them into mortgage loans they can’t afford.

Homeowners facing foreclosure are usually terrified of losing their home and will do anything to avoid it. This is where advice from an experienced attorney can help.

It’s important to know you have options. I’ve briefly described most of them below. But choosing the best option may require making difficult choices and decisions. To make the right decision, you need to understand the consequences of that decision. Everyone’s situation is different. Which choices are best for you depends not only on your financial circumstances, but also on complicated facts and legal issues that are hard for non-lawyers to identify and understand.

Here is a brief description of the options available to homeowners who are behind on their loan payments and are threatened with foreclosure:

Selling your home. No one wants to be forced into selling their home. Moving is stressful and may require parents to change jobs and children to change schools. But if you have equity in your home, selling it on the open market for fair market value may be your best option. You’ll get a higher price than you would if your home is sold through a foreclosure sale. You can pocket the difference between the sales price and the balance of your mortgage loan and use the money to pay off other debts and relocate your family. You’ll get out from under mortgage loan payments you can’t afford. You can also avoid foreclosure and further damage to your credit rating. That should make it easier to buy a new home in the future.
Refinancing. You may be able to reduce your monthly payments by refinancing your existing mortgage loan. Of course, this may not be possible if your payments are delinquent, you have bad credit or your home is worth less than the amount you owe on your existing loan.
Modifying your mortgage loan. Another option is to lower your monthly payment by getting your lender to agree to a loan modification. While the most popular government program for modifying mortgage loans (the Home Affordable Modification Program, or HAMP) has ended, there is nothing to prevent a lender from modifying your loan. Unfortunately, some lenders and servicers don’t negotiate fairly and make decisions that seem inexplicable.
If you’re considering a loan modification, you should beware of scams that target vulnerable homeowners. List brokers use public records to identify homeowners who are in financial trouble, compile lists and then sell the list to anyone willing to pay their fee. Some companies that buy these lists send letters or postcards to homeowners promising “quick-fixes” or “easy solutions”, guaranteeing they can get a loan modified, or promising homeowners they won’t lose their home. These are red flags. So are ads for loan modification services that require you to pay fees in advance (that’s illegal), advise you to stop making payments on your loan or claim that the company is affiliated with a government agency or program.
Short sales. Homeowners who are “underwater” may still be able to sell their home through a short sale. A short sale occurs when the sales price for your home is less than the amount you owe on your mortgage loan, and the owner of your loan agrees to accept the sales price instead of foreclosing. Think of it as a compromise – a middle ground between keeping your house through a loan modification or losing it through foreclosure. There are also other advantages. A short sale should hurt your credit rating less than a foreclosure would. People who lose their homes through foreclosure may have to wait at least 7 years before they can get a new mortgage loan. Short sellers may qualify for a new loan in a little as 2 years. But it’s important to realize that short sales are not automatic and can be very complicated, particularly when there is more than one loan involved. Short sales have to be negotiated with your lender or mortgage loan servicer. The negotiation process can be difficult and lenders don’t always act in good faith.
Other ways to avoid foreclosure. If your mortgage loan is “underwater” and you can’t get a modification, you still have some ways to avoid foreclosure.
Your lender may agree to a repayment plan that allows you make up missed payments over a certain period of time. But don’t agree to a repayment plan unless you understand all of the terms and requirements and are certain you can afford the new payment amount.
Your lender may be willing to accept a “deed in lieu of foreclosure”. Some lenders and may even be willing to give you some money for doing so (sometimes called “cash for keys”).
Your lender might agree to a loan “forbearance” . This would involve temporarily reducing the amount of your monthly payment or suspending payments for a period of time while you get on your feet. Forbearance might be a good option if you fell behind on your payments due to a job loss or illness.
Foreclosure defense. Importantly, you may have defenses to foreclosure, particularly if you were the victim of mortgage fraud or predatory lending. To raise those defenses, you would have to file a court complaint and then ask the court to stop the foreclosure by issuing a injunction. I’ve handled multiple cases involving predatory lending and mortgage fraud and would welcome the chance to discuss your situation with you. The following are some signs that your mortgage (or other loan) may have been predatory:
your loan has a very high interest rate
you paid very high loan fees or excessive “points” when your loan closed
your loan has a pre-payment penalty
you paid a “yield-spread premium” to your broker
you were placed into an unnecessarily expensive loan based on your age or ethnicity (usually referred to as “steering”)
your loan has an adjustable interest rate that went up substantially
your lender or mortgage broker promised that you would be able to refinance your loan in a few years
your lender or mortgage broker advised you to repeatedly refinance your loan and you received little or no benefit from doing so
you used a mortgage broker who overstated or advised you to overstate your income and assets on your loan application