Loss Mitigation Options in Foreclosure

HOMEOWNERS WHICH ARE IN FINANCIAL STRESS NEED TO SELECT A LOSS MITIGATION OPTION

Homeowners in the foreclosure process do not need to lose hope and please do not ask your uncle what to do, unless of course he is an attorney that works with distressed homeowners.  The very worst thing you can do is to walk away from the home.

There are many options available even after you have been served with a mortgage foreclosure summons and if the home is your only debt, you can typically resolve your issue without filing bankruptcy.

These loss mitigation options include:

Loan Modification-A loan modification is a process whereby the mortgagee (lender) agrees to permanently change one or more of the terms of a mortgage loan (interest rate, term, principal) resulting in a payment the mortgagor (borrower) can afford. This allows the borrower to remain in his or her property provided continual, timely payments are made. A borrower should consult with his or her mortgagee to obtain a modification. Notwithstanding the foregoing, the government also plays a role. The Home Affordable Modification Program (HAMP) is the result of a $75 billion dollar federal program established in February 2009 to help responsible homeowners avoid foreclosure by providing affordable and sustainable loans.

Deed in Lieu of Foreclosure- A deed in lieu of foreclosure agreement is a contract reflecting a defaulting borrower’s and its lender’s agreement to settle an existing foreclosure action or a contemplated foreclosure action prior to the completion or the commencement of a foreclosure proceeding.  The transaction involves the borrower’s voluntary conveyance of the property to the lender in exchange for the avoidance of a protracted foreclosure proceeding. Often, a borrower will agree to voluntarily deed the property to the lender in exchange for the lender’s agreement to release or otherwise limit potential personal liability of the borrower and any related guarantors. The terms and  conditions on which a defaulting borrower will grant, and its lender will  accept, a deed in lieu are highly negotiable and dependent on a variety of  factors, including the underlying physical and environmental condition of the  property, the value of the property, and the potential personal liability of the  borrower and guarantors. A typical deed in lieu agreement is similar in content to a real estate purchase and sale agreement.

Consent Foreclosure-Pursuant to a consent foreclosure a judgment is entered vesting absolute title in the mortgagee free and clear of any interest the mortgagor holds in the property; all recorded liens and claims (other than liens held by the United States, which must be foreclosed by judicial sale); unknown owners and non-record claimants (provided they were properly joined and served); and the rights of all parties to the foreclosure with subordinate interests. The benefit to the lender is that a consent foreclosure avoids the requirement to sell the property at a judicial sale (but not where there are federal tax liens). The benefit to the borrower is that, under Illinois law, the lender cannot pursue a personal deficiency against the borrower.

Short Sale- A short sale occurs when a property is sold for less than the seller (borrower) owes on his or her outstanding mortgage. This is also referred to as a short payoff. The difference between the outstanding mortgage debt and the short payoff is called the deficiency. The borrower remains liable for the deficiency unless negotiated otherwise. A lender may forgive the deficiency, settle for a reduced one-time lump sum payment, or require that the borrower execute a new note for the deficiency to be paid over a period of time.

Remember, even if you are actively participating in a loss mitigation option, you still are required to defend the foreclosure action to ensure that a foreclosure judgment is not entered against you. For more information and to determine which loss mitigation option is best for you, contact an attorney who concentrates in all of these areas of law.  Please do not ask your uncle.