Sadly, this is the day and age that the prevalence of foreclosures continues to creep closer and closer to home. Many hopeful sellers wonder what a foreclosure entails and what steps can be taken to make it happen later. Below is a timeline of events when a property becomes “delinquent” on payments.
Default Letter
The Letter of Default is a formal letter sent to you in an attempt by the lender to avoid foreclosure action. The lender hopes that this letter will encourage you to contact them to reach an agreement called Foreclosure. With the age of foreclosures, we have seen cases where a homeowner is 3 months or more delinquent, and has not yet received this letter.
Foreclosure Settlement (Relay, Forbearance, Loan Modification)
Assistance in the foreclosure process is usually done during the initial phase of the pre-foreclosure stages. Lenders are more than willing to try a plausible scenario to stop delinquency and bring the loan current. There have been times when the lender is willing to lower interest rates, change adjustable-rate mortgages to fixed-rate mortgages, forgive delinquent amounts owed, and even remove minor liens they may have if the value of the property is less than what is owed. If a work plan is not initiated within approximately 45 days of the Letter of Default, your case is usually referred to an attorney to file a foreclosure action.
attorney reference
The lender will refer your case (defaulted loan) to an attorney or trustee, usually within 90-120 days, who then files a petition with the court to foreclose on your mortgage and obtain the lender’s right to sell the home to pay off the outstanding balance. of your loan. The average time between referral to an attorney and foreclosure sale varies by state. In California, a NOD (Notice of Default) can be filed 90 days after the mortgage payment due date. With current regulations in CA, the lender must now personally contact the owner to inform them of their rights, what steps can be taken, etc., before a NOD can be filed.
Junior Link Holders
These are also known as secondary or other link holders. Refers to lenders, individuals, or the government that may have a lien registered against the property. Minor lien holders may be contacted by your primary lender to determine the status of your loan with them. Once contacted, these other lienholders may initiate a separate foreclosure action to protect their interest in accordance with the terms and conditions of the mortgage or deed of trust. In today’s market, we are seeing fewer and fewer junior lien holders applying for a NOD because the value of the property is less than what any junior lien would receive in a trustee sale. Any minor lien holder is still liable for the major liens.
Note: Most link holders easily agree to participate in the training solution.
temporary indulgence
A grace period, usually 30 to 60 days, may be granted to allow you to bring the current mortgage. If requested, you will need to show evidence that you can bring the current loan, such as proof that you have one of the following conditions:
1. Have a purchase agreement for the property and a closing date.
2. Have insurance settlement or pending.
3. Have or be pending approved financing from another source.
4. Have an approved “Relief Provision” end date.
special tolerance
The suspension of payments for a specific period of time, generally no more than 18 months, from the date of the first payment. At the end of the suspension period, the borrower can be expected to resume payment under a Settlement Plan. This plan is used to help borrowers who experience a temporary loss or reduction in income that is expected to be recovered at a later date. Most lenders provide special leniency in any situation for which documentation exists and repair is warranted.
Special long-term indulgence
In certain situations, the special forbearance can be extended up to 24 months.
military indulgence
If you had a mortgage as a civilian and then joined the military, you may be entitled to Military Forbearance granted under the Soldiers and Sailors Civil Relief Act. There are two components to this arrangement:
1. Interest rate reduction
This requires the lender to reduce the interest rate to 6% from the time the borrower begins active duty until the date of release. However, joining the military is not enough; You must show that his income was significantly reduced as a result of entering active duty and that this has caused his financial hardship. If you qualify, this benefit is retroactive to your date of enlistment.
2. Additional indulgence
In certain cases involving financial hardship generally associated with the loss of a higher civilian pay, the veteran may request special consideration in the form of a reduction in the monthly mortgage obligation. Fannie Mae refers to the difference between the scheduled payment and the reduced payment as arrears. Upon release from active duty, the borrower is responsible for bringing arrears up to date. Note: Most lenders will not normally foreclose on a delinquent borrower who has been granted a military leniency. In fact, Fannie Mae’s policy is to offer the borrower additional leniency in this situation. If he is unable to make the payments, he must seek a court order granting him a forbearance until he is released from active duty.
Assumption: An enforceable “pay on sale” clause is waived to allow a qualified buyer to assume the mortgage of a delinquent borrower.
Pre-Foreclosure Sale
To avoid foreclosure, the lender and borrower agree to accept the proceeds of the sale to satisfy a delinquent mortgage, even if the sale results in less than the mortgage balance. To be eligible for this option, you must be experiencing financial hardship as a result of an involuntary decrease in income and an unavoidable increase in expenses that exceed income. Unavoidable causes include:
1. Layoff or job loss
2. Disability or prolonged illness
3. Death of a mortgage payer
4. If you are self-employed, a business setback
You will have to accept the following conditions:
1. Putting the property up for sale will not delay the commencement or continuation of the foreclosure action, but the
the terms of the agreement will be fulfilled pursuant to a sale prior to the foreclosure date
2. You agree to retain ownership
3. You agree to offset any of the lenders losses (usually negotiable)
4. You may have a tax liability if part of the debt is forgiven. There are specific laws in force
(both federal and state) that nullifies this possibility.
5. The property is free of links. If other links exist, lender must agree to training
in accordance with the eligibility requirement for a course
6. The lender retains the right to negotiate and approve the transaction.
Deed-in-Lieu of Foreclosure
This method, offered to homeowners by delinquent lenders, is set up to avoid foreclosure by voluntarily deeding the property to the lender as payment of the debt. It is appropriate when . . .
1. The property has been on the market as a Pre-Foreclosure Sale for three or more.
2. There are legal obstructions to the foreclosure action
3. The deed in lieu of the property allows the lender to take possession of the property sooner than would otherwise be possible
through foreclosure.
You may be eligible for this option if you meet certain hardship requirements outlined in this document and all minor liens are removed. Many people who have gone this route find out later that their credit is not saved by doing a deed instead of a deed and it shows up on their credit report as derogatory as an actual foreclosure.
Forbearance (payment plan)
This is a formal Payment Plan and is based on the Special Forbearance provision and is the preferred settlement option because it is the least expensive settlement alternative. It is usually considered when delinquency is a consequence of;
The death of a contributor to the monthly mortgage payment and this does not necessarily have to be a person in the mortgage; o Illness, catastrophe or natural disaster for which the borrower is not insured; o Any similar or contributing factors. Payment plans can be customized to fit most needs or solutions, however they cannot exceed 24 months.
Modification (mortgage replacement)
This is a change in the terms of the mortgage to eliminate delinquency and avoid foreclosure. The modification includes interest rate reduction, mortgage term extension, negative amortization, replacement of an adjustable rate with a fixed rate, and capitalization of late payments. Modification is appropriate when the potential for a Payment Plan is needed due to a permanent or long-term reduction in income. Other lien holders who have a registered interest in your property must agree to subordinate their interest to the new loan.