By Manny Singh, PA
Law Offices of Manny Singh, PA
1) Modification: You and your servicer would enter into a loan modification agreement that changes the terms of the loan. This option allows you to keep the property at the terms and conditions that have been set forth in the modified mortgage. It is as if a new mortgage was taken out without the cost of refinancing the property. If a bankruptcy is planned at some point, we generally recommend doing a modification prior to the filing of a bankruptcy. The reason for this is if in the future you want to walk away from the property, a modification done prior to the bankruptcy will wipe out the liability on the modified mortgage as well as any potential deficiency if the value of the property does not go up.
Downside of this Option: Your credit will be affected, however we do not know to what extent as there is insufficient data at this time.
Please note that we are unaware of any laws that would require the lender to reduce the principal.
If you have a second mortgage you will have to deal with them as well.
2) Short Sale: There are two types of short sales. A short sale is where a property is sold to anyone who can qualify to buy the property and is done with the permission of all the parties that you owe money to. They must agree to take a lesser payoff than what may be owed. The second type of short sale is when you are selling the property to a “friendly buyer”. Please note that short sale bailouts may not be permitted amongst family members. In a short sale, you would sell your property prior to the foreclosure sale. In some instances the creditor may be willing to accept an amount that is less than the total payoff amount in exchange for a release of mortgage. If a bankruptcy is planned, we recommend a short sale after the bankruptcy so that there is no deficiency and no 1099.
Downside of this Option: Your lender may issue a 1099 for the different between the sales price, and what was owed on the property if there is a second mortgage. The first and/or the second mortgagees may ask for a promissory note for some part of the difference. Your credit will also be negatively impacted.
3) Foreclosure: The lender files a lawsuit against you for breach of the mortgage terms, i.e. default on your payment. This may result in the sale of your property. We can provide a foreclosure defense on your case to delay or stall the foreclosure lawsuit. A foreclosure does not stop until the matter is resolved or disposed of by such means as a modification, short sale, bankruptcy or some type of deal that has been entered into.
Downside of this Option: The credit will be negatively impacted for some time and it may take longer to repair your credit. There could be a deficiency, especially if there is a second mortgage. In the past, the first mortgagee did not generally sue for deficiencies, however we are seeing more instances where they are being pursued. A deficiency is the difference between the foreclosure sale price, or the bank’s re-sale price, and what was owed on the property. More than likely, you will also get a 1099 in situations like this.
4) Bankruptcy: In a bankruptcy you can surrender or keep some of the properties, or any combination thereof. In a bankruptcy, if the property is designated as your homestead, the first mortgage cannot be modified without permission of the lender. If the second
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mortgage or any other mortgages are under water (the value of the house is less than the amount of the first mortgage and any outstanding property taxes), you can then cram down the second or third mortgages.
A Chapter 13 Bankruptcy allows you up to five years to catch up the arrears (the delinquent payments plus costs and attorney’s fees). The positive of a bankruptcy is that it wipes the slate clean. It is also easier to rebuild credit with a bankruptcy because you do not owe any money and cannot file another bankruptcy for a period of time. You will not get a 1099 if you file before the completion of the foreclosure.
Downside of this Option: Your credit history will reflect that you have filed a bankruptcy for ten years. You are not, however, to be discriminated against just because you filed a bankruptcy. Please be aware that you must be able to afford the Chapter 13 payments and complete the Chapter 13 Bankruptcy before a discharge can be entered.
5) Repayment Plan: You can set up a repayment plan to pay the full amount of the arrears over a period of time. This would have to be agreed to by your lender.
Downside of this Option: Your credit will be negatively impacted. Once you have gotten back on a payment track, your credit score will begin to improve.
6) Reinstate your Loan: You would pay the total amount of the arrears due to your lender and the lender would then reinstate your mortgage. It will be as if nothing happened. Your mortgage provides for the right to reinstate your loan. The right to reinstate generally expires once the foreclosure has been completed (a summary final judgment) and a sale date is set, however at the present time most lenders are still allowing this option should you have the ability to pay.
Downside of this Option: You will be shown as late on your credit report. This will also negatively impact your credit score. Once you have gotten back on a payment track, your credit score will begin to improve.
7) Forbearance Agreement: You would enter into a written agreement with your lender to suspend or reduce your mortgage payments for a short term. In this particular case, lenders may add the arrears to the mortgage.
Downside of this Option: Your credit score will be negatively impacted. Once you have gotten back on a payment track, your credit score will begin to improve.
8) Deed in Lieu of Foreclosure: You would transfer ownership of your home to the mortgage holder. You would be given a short period of time to move from your home. You may receive a release of your debt, or a substantial reduction of the debt. In most cases, this option may be available if there is only one mortgage or lien on the property. If there is a second mortgage, the second mortgagee has to agree to take nothing. You also have to be current on your homeowner’s association so that there are no liens from the homeowner’s association or from the IRS. You might also receive some compensation for moving.
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Downside of this Option: This can be shown by the mortgage company as a form of repossession. This might be akin to a voluntary repossession as a car. The other problem with this is that your credit score will be impacted and you may end up getting a 1099 which could result in negative tax consequences. In some circumstances, the bank may ask for a promissory note for some part of the balance of the loan.
9) Refinance: If there is equity in the property, there is the possibility that you will be able to refinance the loan. We do not provide this service at our office; however, we can refer you to several mortgage lenders that are capable of doing this.
Downside of this Option: There are no negatives other than costs of the refinancing.
10.) Cash for Keys: Some banks are offering cash for keys, under certain limited circumstances. This means that the mortgage company may, under limited circumstances, offer an amount of cash if you will not destroy the property and give them a deed-in-lieu of foreclosure. You can call the bank directly to see if they offer this, or we can do it for you.
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