How Do I Avoid Foreclosure:
A step by step process for distressed homeowners.
This is the seventh in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.
We continue the discussion of various options that a distressed homeowner may have. Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.
This option will stop the foreclosure for a period of time but may only delay the process. Anyone considering this option should consult an attorney who specializes in Bankruptcy. Be careful to select one who has a good reputation. Call if you need a referral.
There are several kinds of bankruptcy. Chapter 7 Bankruptcy is a process to liquidate your assets. Chapter 13 allows you to restructure your debt. You may have 3 -5 years to catch up on your delinquent accounts.
I major drawback is that you will find it difficult to sell your property during the bankruptcy process. You will have to get the trustee’s approval to do so. Also, if the homeowner is not able to make all of their payments after the bankruptcy the home will foreclose anyway. All of the time and effort will have been wasted.
Note that a bankruptcy has an impact on your credit similar to that of a foreclosure. Loan applications always ask in you have filed for bankruptcy, so there is a long lasting effect on your ability to buy on credit.
When a homeowner owes more on their home than it is worth and none of the other options listed in this and previous postings in this series do not apply, the Short Sale option may.
In order to qualify for a Short Sale the homeowner must have a financial hardship that is acceptable to the lien holder. Major loss of income, loss of a job, major medical, death in the family are some of the hardships that lien holder may accept.
As a result of the financial hardship, the homeowner must have a monthly short fall–more month than money.
And Finally, the homeowner must be insolvent. They can not have significant liquid assets that would allow them to pay their loan shortfall and expect the lien holder to forgive a portion of their loan commitment.
When a homeowner meets the lien holder criteria there is a strong possibility that a short sale will be approved. The process takes time, a lot of documentation supporting the hardship, shortfall and insolvency; and a lot of work. A majority of Realtors avoid short sales because of the amount of work involved and uncertainty that they will be approved.
There is also a strong possibility that the homeowner will owe taxes on the portion of the loan that is forgiven. Not every attempt at a short sale is successful. Each case is different and has to be examined in detail by a professional who specializes in helping homeowners avoid foreclosure.
Those who do complete am approved short sale are able to purchase another home after two years. The hit to their credit is not nearly as damaging as is a foreclosure or bankruptcy. Loan applications do not ask if you have completed an approved short sale. Long term this option is far superior to many of the others listed.
Here are links to a few web sites with helpful information for less specific situations:
Feel free to contact Mike West, Realtor, CDPE if you have any questions or need help.
(916) 337-0658 e-mail: Mike@BMikeWest.com