Tuesday June 20, 2017

Foreclosure Alternatives Q and A

Here are some common questions and answers which homeowners who are facing foreclosure may be interested in.  Hopefully this information will help you to form a better understanding of your situation and maybe shed some light on some possible solutions.

Q:  The bank is trying to foreclose on me.  How soon will I have to leave?

A:  Foreclosure timeframes vary by state but most foreclosures take at least six months from beginning to end.  During those six months no one can kick you out of the house.

Q:  Is a short sale better than a foreclosure?

A: Maybe, maybe not.  It isn’t a question of “better,” it’s a question of “better for you.”  For some people a short sale makes sense—it can speed up a painful process, may discharge you of your mortgage debt, may protect your credit to a limited extent, and will protect your right to purchase a home in the next seven years under Fannie Mae rules.  You also may be offered cash for keys.

A foreclosure will be harder on your credit, and won’t discharge you of your debt, and will inhibit you from purchasing a house in the next seven years.  You may still be offered cash for keys though, and you’ll get to stay in the house for a longer, more predictable time frame, during which you can save up money instead of making your payments, a decision called strategic default.  If you declare bankruptcy late in the process, you may be able to get the court to auction off the house and discharge your mortgage.

Q: If I declare bankruptcy, will I lose everything?

A:  If you file for Chapter 13 bankruptcy, you won’t likely lose anything, and may even be able to save your home by going on a reorganization plan which allows you to more gradually pay off your debts and monthly bills.  After a few years of this many of your debts will be discharged.  If you file for Chapter 7 bankruptcy, all “non-exempt” property is potentially forfeit.  This includes your house and certain (but not all) vehicles.  If however you can manage to pay on your car loan and house loan once your other debts are discharged, your lenders and the court may agree to let you keep both.  There is no guarantee on this though.

Q:  Can the government help me keep my home?

A:  There are several government programs which you should look into.  They won’t help the majority of homeowners, but a small minority will be eligible.  They are all grouped under the Making Home Affordable® (MHA) plan and include the Home Affordable Modification Program® (HAMP), the Home Affordable Refinance Program® (HARP), and the Home Affordable Unemployment Program® (HAUP).  Other refinancing programs offered through the government such as the reverse mortgage for seniors may help as well.

Q:  Which program should I apply for?

A:  That depends on your situation.  Are you already delinquent?  Apply to HAMP.  Are you current on your payments but having a rough time?  Apply to HARP.  Did your situation emerge because of a lost job?  Try HAUP.

Q:  Can the government help me with a short sale or deed-in-lieu?

A:  Yes.  The Home Affordable Foreclosures Alternative® (HAFA) program was created to streamline this process for lenders and homeowners, saving time, money and hassle for all concerned.

Q:  What is the best foreclosure alternative?

A:  There is no single “best” foreclosure alternative.  What is right for your neighbor may not be the best solution for you.  You should not base your decision off of what you are told is socially acceptable, but instead use rational financial thinking to come to your decision.  When you listen to advice from those around you, professional and otherwise, ask yourself what is motivating that advice.  There are a lot of biases out there.  A short-sale agent will tell you a short sale is best to try and get a commission, for example.  Does that mean a short sale isn’t best?  It depends entirely on you.  The agent’s advice may or may not be valid.  Get a lot of second opinions and then think for yourself and figure out what to do from there.

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