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Sacramento Foreclosure…How to Evaluate Your Options

There are a number of temporary or permanent options to help you stay in or sell your home when you are facing foreclosure.  I urge you to explore and evaluate all of your options and make an informed decision for your financial future.  PLEASE BE AWARE OF SACRAMENTO FORECLOSURE RESCUE SCAMS!

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If you are working with your lender to keep your home, known as retention, there are several options:

Repayment Plan: Your lender gives you fixed period of time to repay the amount you are behind by adding a portion of what is past due to your regular monthly payment.  At the end of the repayment period you have gradually paid back the amount of your mortgage that was delinquent.  This option may be appropriate if your financial stress is temporary and you’ve missed only a small number of payments and can afford the monthly increase.

Refinancing: This is not necessarily a good option when you have late payments and are facing foreclosure.  There are instances where it may help, but be aware of predatory practices. Talk to your lender to see if refinancing is an option for you.

Forbearance: Your lender may offer a temporary reduction or suspension of your mortgage payments while you get back on your feet.  At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current.  Forbearance may be an option if your financial stress is temporarily but it isn’t going to help you if you’re in a home that you can’t afford.

Reinstatement: Your lender may agree to let you pay the entire past-due amount, in a lump sum payment and by a specific date. This is often combined with forbearance when you can show that funds from a bonus, tax refund, or other source will become available at a specific time in the future.  This option may be appropriate if your problem paying your mortgage is temporary.

Loan Modifications: This is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your mortgage to make the payments more affordable.  Loan modifications can include lowering the interest rate, extending the term of the loan, adding missed payments to the loan balance, or even principal reduction.  Loan modifications may be necessary if you are facing a long-term reduction in your income.

If you and your lender agree that you cannot keep your home, there are a number of liquidation options:

Sell Your House: Depending on the real estate market in various areas in Sacramento and the amount of equity you have in the house, selling your home may provide the funds you need to pay off your current mortgage debt in full, plus the expenses connected to selling the home (such as real estate agent fees). Lenders might postpone foreclosure proceedings if you decide to sell your home. Doing so would also allow you to avoid late and legal fees and damage to your credit rating, and protect your equity in the property.

Assumption: An assumption permits a qualified buyer to take over your mortgage debt and make the mortgage payments, even if the mortgage is non-assumable. As a result, you may be able to sell your property and avoid foreclosure.

Short Sale: If you can sell your house but the sale proceeds are less than the total amount you owe on your mortgage, your lender may agree to a short payoff and write off the portion of your mortgage that exceeds the net proceeds from the sale.  This approach avoids a damaging foreclosure entry on your credit report.  You still may face a tax liability on the amount of debt forgiven.  Although the Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.  You’ll need to consult a competent accounting professional.

Deed-in-lieu of Foreclosure: You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt.  Usually you must try to sell your home for its fair market value for at least 90 days before a mortgage company will consider this option. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, and you may face an income tax liability on the amount of debt forgiven. A deed in lieu may not be an option for you if other loans or obligations are secured by the property, such as second mortgages, judgments from creditors, or tax liens.

Personal bankruptcy tends to be the option of last resort for debt management.  Bankruptcy will generally stall foreclosure; however, it does not necessarily stop a lender from foreclosing on a home if payments aren’t made. There are two types:

Chapter 13. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property. After you have made all the payments under the plan, you receive a discharge of certain debts.  To file, it is necessary to show there is income to repay debts and current bills.

Chapter 7. In Chapter 7, most debts are canceled, but the court sells all assets to pay as much of the debt as possible. State law determines whether the home would have to be sold to pay debts in a bankruptcy. Some debts cannot be canceled in bankruptcy: taxes owed, child support, credit-card fraud and alimony.

Bankruptcy has long-lasting and far-reaching consequences.  A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy another home, get life insurance, or sometimes, even get a job. Still, it is a legal procedure that can offer a fresh start for people who can’t satisfy their debts via other means.