If you are facing foreclosure, you essentially have 5 options:
- Contact your lender and work out a payment plan or a loan modification
- Contact your lender and see if a short sale is an option
- Contact your lender and see if a “deed in lieu of foreclosure” is an option
- Seek bankruptcy
- Sell your house
It is important to act immediately after you receive the notice of foreclosure, as with a Non-Judicial foreclosure, time is of the essence. If you do want to stay in your house and have cash available, then working out a payment plan or loan modification is your best option. But this usually requires some form of payment. So, you must have cash available. Every situation is different, but if the bank is going to work out a payment plan then they are usually going to want a significant payment up front. A loan modification is a written agreement between you and your lender which changes the original terms of the mortgage. The bank could make the term longer, they could defer past due interest until the house is sold, or they could change the interest rate to name a few examples of changing the terms. To qualify for a loan modification, it is very much like applying for a loan again. You’ll need to provide personal financial information, tax returns, proof of employment, etc.
A short sale is where the bank agrees to take less than the amount owed. Keep in mind, real estate transactions in Georgia range from 2-5 months depending on where you live. In Georgia the foreclosure process takes 1 month. A short sale usually takes 2-3 months for the bank to approve. So even if you get the property under contract, you cannot sell it until the bank agrees to take less than what is owed. Not to mention, you’re negotiating with the foreclosure attorney at this point, which adds another layer of difficulty to the situation. In the State of Georgia, a short sale is usually not an option when facing foreclosure. If you live in a Judicial State, the foreclosure process takes 6-12 months. In that case a short sale can be a viable option, but not in Georgia.
A deed in lieu of foreclosure is where you give you the property back to the bank. You still lose your house, but the foreclosure doesn’t go through the legal proceedings. The problem with this option is the securitization of mortgages. If you are dealing with a local bank who owns your mortgage, then they may be willing to take the property back in lieu of going through the foreclosure process. But if you are dealing with a large national bank, they package your mortgage with other mortgages and sell it on the stock market. Believe it or not, there can be several entities involved with your mortgage. Typically, you have a servicing company, which is who you make your payments to and they answer the common customer service questions. They also pay your insurance payments and tax payments out of your escrow account. Then there can be another bank that actually owns the mortgage and they pay the company that you deal with to service the loan. Then you have the U.S. Government who insures and guarantees the loans. Two examples are FHA and conventional loans. FHA loans are backed by the Federal Housing Authority, which is part of the U.S. Government. Conventional loans are guaranteed by Fannie Mae or Freddie Mac, which are companies that partner with the U.S. Government. It is just a lot of bureaucracy and red tape, which is why this isn’t a common option for home owners facing foreclosure.
Filing for bankruptcy is another option. Filing for bankruptcy doesn’t necessarily stop the foreclosure process, but it does delay it. The foreclosing lender has to ask the bankruptcy judge for permission to proceed with the foreclosure. The bankruptcy judge controls the entire process. Bankruptcies stay on your credit for 10 years and you can only file for bankruptcy once every 10 years. For individuals there are two types of bankruptcy, Chapter 7 and Chapter 13. With a Chapter 7 bankruptcy, all your debts go away but you must sell all of your assets, such as your house. Chapter 7 bankruptcy is also called a liquidation bankruptcy and the process takes 4-6 months. Once your house sells, the judge will decide how much of those proceeds go to your mortgage lender or your other debtors. But regardless, you still have to move. This process just buys you more time. A Chapter 13 bankruptcy is essentially a repayment plan. This is much more difficult to get approved and you would make payments to the courts and the court’s trustee would distribute those payments to your creditors. The court allows you 3-5 years to catch up on your payments to your creditors.
Lastly you can sell your house. Full disclosure, we are investors who specialize in working with homeowners in foreclosure to buy their house and help them avoid a foreclosure on your credit report. When you’re facing foreclosure there are many challenges in selling your house. We address those in more detail under our blog titled CAN I SELL MY HOUSE TO AVOID FORECLOSURE. Essentially because the foreclosure process happens so quickly, you don’t have enough time to sell your house on the retail market. You’re more likely to sell you house to an investor. This is because investors will take on projects and negotiate with the bank’s lawyers. It is common with a foreclosure that there is some deferred maintenance, so if that is the case investors are willing to front the cash for repairs, so any condition is okay. Investors not only help you avoid a foreclosure but also can structure the purchase where your credit will actually be improved as part of this process. Lastly, investors can usually close very quickly, which is essential when facing foreclosure in the State of Georgia. This allows you to stay within the 4-week window it takes for a foreclosure in Georgia. Selling to an investor also gives you more time to move and allows you to move on your terms. If you do not want a foreclosure or bankruptcy on your credit report, then selling to an investor could be your best option.
