Are there Alternatives to Foreclosure? You bet!

Here are a few options to explore before you allow a foreclosure process to run its course:

(1) Loan Workout / Loan Modification - A loan workout is where you negotiate with your lender, when you are delinquent or in default of your loan, in an attempt to lower your loan interest rate, which in turn reduces your monthly payment. Other names for a loan workout include loan modification or repayment plan. A forebearance is related but slightly different.

(2) Forbearance - This is often used when a Notice of Default has been filed. A loan forebearance allows you to delay or reduce your monthly loan mortgage payments for a short period of time with the understanding that another option will be used at the end of that time to bring your account current. When a forebearance applies, your lender will generally cease taking any legal actions against you.

(3) Short Sale - A short sale is generally the option to explore when all negotiations for a loan workout or loan modification have failed and you are upside-down on your mortgage (which means you owe more money than your house is worth). In a short sale, the lender agrees to cooperate in the sale of your property and take a loss that will usually result. The way this works, you place the home up for sale and any offers that you or your broker receive are presented to the bank for approval.

Unlike a traditional sale when the homeowner decides whether or not to accept the offer, in a short sale it is the bank that controls the negotiations and the homeowner usually has no say in the process. A short-sale is therefore one of the last-ditch oppoprtunities to save someone's credit from referencing a foreclosure filing.

(4) Mortgage Refinance - Refinancing may be possible. Refinancing to a shorter term loan or an interest-only loan may help you lower your payments enough to be able to keep your house. In order to refinance, your new loan will have to be able to pay off the old loan. With credit guidelines tightening, this may not be the best option, or a feasible option, but it is worth exploring.

(5) Deed-in-lieu of foreclosure - A Deed in lieu is a deed instrument in which a mortgagor (i.e., the borrower) conveys all interest in a real property to the mortgagee (i.e., the lender) to satisfy a loan that is in default and avoid foreclosure proceedings. The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy.

In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Generally, the lender will not proceed with a deed in lieu of foreclosure if the current fair market value of the property exceeds the outstanding indebtedness of the borrower.Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily.

This will enact the parol evidence rule and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

Retrieved from "http://en.wikipedia.org/wiki/Deed_in_lieu_of_foreclosure"

(6) Filing Bankruptcy - Filing Chapter 13 Bankruptcy can be used to stop foreclosure of your home. In order to qualify for this option you will need to have a steady income stream. How this works is you file a chapter 13 petition for bankruptcy before your house is sold. The Chapter 13 stops the foreclosure process immediately. Once the case is filed, you will propose a repayment plan to repay the amount you fell behind on the mortgage. Once approvied, you will begin to once again pay your regular mortgage payments, which must be accepted by your mortgage company under "operation of law." A forced loan modifcation can be approved if the owner can prove they cannot afford the curent payments.

You should note that the filing of a Chapter 13 bankruptcy stops ALL collection activity though the application of an "automatic stay." The automatic stay remains in effect during the life of the case unless the court orders otherwise. Note that you can always refinance or sell your home while under Chapter 13.

California Loan Workouts and BK Law - About This Site!

This site is designed to provide citizens in the State of California with general legal information about the topic of loan workout law and bankruptcy.

If your house is being foreclosed on you need to take swift action. This site is provided to help you evaluate options to being foreclosed on.

If you have any questions, check out our website at www.vondranlaw.com or call us for a free initial consultation at (877) 276-5084.

Steve Vondran, Esq.

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