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“A performing loan is better than a non-performing loan.”
Jim Sorrentino, Department of Housing and Urban Development
You have a variety of options to avoid foreclosure by either bringing your loan current or paying it off.
- Reinstatement (“catching up the loan”):
Reinstatement occurs when the loan is brought current by paying the total amount past due. You have a absolute right to fully reinstate your loan within 90 days of being served with a Complaint to Foreclose Mortgage. Other points about reinstatement:
- Lenders will normally accept full reinstatement at any
time before a foreclosure sale, even though they are
not required to by law.
- Call your lender's attorney to obtain the amount to
reinstate.
- The total amount paid must include all back payments,
late charges, inspection fees, any advances and
attorneys costs and fees.
- The standard mortgage provides that you must pay all
of the lenders fees and costs but scrutinize the figures
to make sure that you do not pay more than you
should.
- Technically, the law only allows you to reinstate your
mortgage once every five years.
- Repayment Plan:
A repayment plan is a agreement to bring the mortgage current over time. The terms are generally a payment of ½ of the arrearage as a down payment and 1 ½ payments a month until the loan is current. A sample repayment plan is included in Chapter Six. Other points about repayment plans:
- Always attempt to negotiate a repayment plan before
filing a Chapter 13 bankruptcy. You can always file
bankruptcy after a failed repayment plan but your
lender will not give you a repayment plan after a failed
bankruptcy.
- If the written repayment plan that your lender asks you
to sign provides that you waive any defenses that you
have to the foreclosure, get advice before you sign it.
- If the repayment plan fails, your lender gets to keep
the money you paid and proceed with the foreclosure.
- Negotiate to have the foreclosure case dismissed
during the repayment plan. This may help you obtain
a refinance.
- Redemption:
Redemption is the act of paying off your loan in full. You have the right to payoff the loan anytime during the redemption period and the redemption period must expire prior to a foreclosure sale. Redemption usually occurs either through a sale or a refinance of the property. Other points about the redemption period:
- The redemption period expires 7 months from the
date of service of the foreclosure complaint on you if
you live in the property, or 6 months later if you do
not, or 3 months from the date the judgment of
foreclosure is entered, whichever is later.
- If the judge decides that you have “abandoned” your
house, the redemption period can be shortened to 30
days after the Judgment of Foreclosure is entered.
- You still own your home during the redemption period
and you have the right to sell it if you choose.
- You have the right to possession during the
redemption period. No one can change the locks on
your house and the Sheriff cannot evict you without a
court order.
- The amount to payoff your loan will include the
principal balance, interest, late charges, property
inspections, advances for taxes and/or insurance and
attorneys costs and fees. Examine the amount to
make sure you do not pay more than you should.
- Your lender must accept the money if you tender the
full amount owed during the redemption period.
- A foreclosure sale of your house cannot take place
before the redemption period expires. But once the
redemption period expires, the sale will occur shortly
thereafter, perhaps as soon as the next day. You have
the right to possession of your house for 30 more days
after the foreclosure sale is confirmed in court by the
judge.
- If you appear in court when the Judgment of
Foreclosure is entered, ask the judge to extend the
reinstatement period to the end of the redemption
period. This will give you more time to bring the loan
current if your income increases.
- Home Sale/Short Payoff:
You can sell your home anytime before the redemption period expires. A short payoff occurs when you owe more on the loan than the house is worth. A lender will usually not accept a short- payoff on a refinance. Refer to Chapter Three for more discussion about “ short payoffs.”
- Refinance:
It may be possible for you to avoid foreclosure by refinancing your mortgage. But be realistic about your chances for a refinance and your ability to pay on the new loan before you pay money to apply for one. Points to remember about refinances before you pay any money to a mortgage broker:
- You must have about 30% to 40% equity in your
home to refinance. If not, you will not be able to
refinance.
- You must be employed to refinance. If not, you will
not be able to refinance.
- In the mortgage business, risk equals rate. The worse
your credit rating, the greater the risk you are, and,
therefore, the higher the interest rate on the new loan.
In addition, you will pay high loan costs to get the new
mortgage.
- If you are able to make steady payments on the
refinanced loan, you may be able to refinance again
within a short period (6 to 12 months) to a lower
interest rate. (Although you will have to pay more
loan costs)
- Loan Modification:
A loan modification refers to changing the terms of your loan. These changes may include extending the term of the mortgage, adding the delinquency to the mortgage amount or reducing or fixing your interest rate. Loan modifications are rare.
- Bankruptcy:
Filing bankruptcy will stop the foreclosure case. A Chapter 7 bankruptcy will eliminate your personal liability on your debts including the Note. However your lender can still foreclose the mortgage. A Chapter 13 bankruptcy is a typed of forced repayment plan. A bankruptcy can be filed anytime before a foreclosure sale. For most people, this should be the last option, not the first! Refer to Chapter Four for more information about bankruptcies.
- Deed-in-Lieu of Foreclosure:
A deed in lieu of foreclosure is a surrendering of the property to your lender in full satisfaction of the amount owed. By accepting the deed, the lender releases you from personal liability on the loan. Other points about Deeds-in-Lieu of Foreclosure:
- Lenders will not accept a deed-in-lieu of foreclosure if
there are other liens on the property.
- You will need to move out of the house shortly after
you sign the deed-in-lieu of foreclosure.
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