A report published by FREDDIE MAC (Federal Home Loan Mortgage Corporation) tells us that "fewer than half of homeowners contact their lenders before entering foreclosure". These homeowners are not only missing out on the assistance they might be able to receive from their lender, they more than likely do not know that are entitled to talk to a counseling agency. Others mistakenly believe that transferring title to the property will solve the problem.

Many homeowners who find themselves facing foreclosure proceedings labor under the misconception that the banks or lenders want their home; this is not true. The foreclosure will cost any lender tens of thousands of dollars. Understandably the lender would rather avoid foreclosure and prefers workout plans and debt solutions to foreclosure.

Among the options your lender may be able to offer are:

• Reinstatement (lump sum payment)
  
• Forbearance
  
• Repayment Plans
• Loan Modification
  
• Deed-in-Lieu Agreements
  

Be sure that you get a written agreement outlining the terms of the transaction and that your lender offers and that you read and understand the entire transaction. Why?

Any agreement should clearly state that the lender is accepting these terms instead of going forward with foreclosure proceedings and that this agreement will fulfill your obligation to the lender. Example a Deed-in-Lieu does not automatically wipe out junior liens (2nd mortgages) whereas a foreclosure does.

Short Sale

You may want to consider a "short sale" of your home to avoid the recording of a foreclosure on your credit report. Short sales occur when the bank accepts less than the balance of your loan in payment of your debt (again be sure the amount accepted fulfills your obligation). A short sale agreement may be reached with your lender if you are at least 2 months in arrears* on your payments and the amount offered by the buyer is approved by the lender.

If you do decide to put your home on the market it would be to your advantage to contact an aggressive real estate agent with experience handling distress sales.

Contact your lenders loss mitigation department immediately to find out if they are open to such a sale.

Title Transfers and Foreclosure

There are two reasons that transferring title does not solve the foreclosure problem.

1. Many transfers are commonly accomplished through a quit claim deed. A quit claim deed conveys ownership and transfers financial responsibility in regard to property taxes, etc. BUT DOES NOT change any obligation under a mortgage.

2. Most mortgages or trust deeds today contain alienation or acceleration clauses. An alienation or acceleration clause is language contained in the loan documentation (mortgage or deed of trust) allowing the loan to become due and payable in the event the owner sells or transfers title to the property.

I.E. Title to the property cannot transfer either by sale or quit claim deed without triggering the Acceleration or Alienation Clause thus causing the loan balance to become due and payable.

Assumable Mortgages

I should have expected someone to consider this as a solution to foreclosure but I have to admit when I was asked about getting someone else to take over the loan to stop the foreclosure I was surprised.

A home buyer may be able to assume ("takeover") the seller's mortgage. However, even though an assumable mortgage does not have a due-on-sale clause, assumable mortgages are a rarity today and lender approval of the new borrower is required.

If you don´t feel comfortable talking to your lender yourself a HUD Approved Housing Counselor for the National Homeownership Preservation Foundation can be reached on the web at www.995hope.org or by calling 888-995-HOPE 24 hours a day/7 days a week.

Your window of opportunity passes much too quickly when it comes to foreclosure proceedings – time is crucial – ACT NOW!

© 2008 by Lynnette Phillips

* I stand corrected...

"In your article you wrote that you have to be 2 months in arrears. Actually some short sales have been arranged when the owner was current. It is rare but it does happen with the right circumstances."

Mike Rohrig

Related Articles