LENDER VS. HOMEOWNER
When a homeowner falls two or three months behind in mortgage payments, he is a homeowner in distress, or as the lender would consider it, in default. At this point the lender will notify the debtor of the default in writing, and request that payments be brought up to date.
In answer to the lender’s request, the debtor can either bring the mortgage payments up to date, if possible, or if unable to comply with the lender’s demand, request the lender to agree to a possible loan modification, or short sale.
If the lender agrees to a temporary loan modification, the debtor must prove his/her ability to pay the agreed upon reduced amount. Additionally, since the agreement would be for a limited time the homeowner must prove to the lender that his/her prospects are promising enough to renew original on -time mortgage payments upon the expiration of the loan modification agreement.
Another possible recourse for the homeowner in distress is to request the lender to agree to a short sale, whereas the house may be sold for less than the balance still owed on the mortgage.
In this case, the homeowner would be required to produce an offer to the lender from a qualified buyer. If the property is in foreclosure and scheduled for auction, the debtor’s attorney or Realtor will then contact the lender, advising of the offer and will attempt to convince the lender to postpone the auction, and accept a short sale.
Should the debtor file for bankruptcy, the court has the authority to issue an automatic stay, preventing all creditors, including the lender, from taking any further action or continuing any further proceedings –including an auction – from taking place.
The lender can request the court to lift the automatic stay, particularly if notice of default was filed prior to the bankruptcy filing. However, if the trustee determines that there is nonexempt equity in the property, equity that can be liquidated to pay creditors, the lender’s request may be denied.
Homeowners in distress and facing loss of their property can find out if they are eligible to seek aid through the government’s Home Affordable Foreclosure Alternatives (HAFA) and Home Affordable Modification program (HAMP.)
To prove eligible for HAFA you must apply to HAMP first and answer qualifying questions. Although there is too much detail in these programs to be included in this article, detailed information can be obtained from the following website:
The HAFA short sale program was put into effect on April 5, 2010, and is scheduled to expire on December 31, 2012.
Certainly, there are some legal alternatives for distressed homeowners, but the best advice is to act before your lender knows you have a problem. Tell them that you foresee a problem in making payments as scheduled and perhaps you may be able to work things out, even on a temporary basis, by being upfront and showing good faith.
If you have any questions about the short sale process, feel free to give us a call at 702.376.0088 for a free consultation.