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Home Foreclosure Options Explained 
Foreclosure occurs when the homeowner falls behind in monthly mortgage payments and

defaults on the loan. The lender repossesses or sells the home in order to satisfy the debt. Typical

options you can pursue to avoid a home foreclosure are set out below. Your solution will depend on

your financial status, the mortgage's default status, the type of loan you have and
the various laws that apply.


Looking for a Current List of Foreclosures in Big Bear Lake?   Then Click Here!

Reinstatement                             

Prior to a foreclosure sale, borrowers have the right to reinstate a delinquent loan. The

reinstatement option gives homeowners the opportunity to make up back payments plus any

incidental charges incurred by the bank such as filing fees, trustee fees and legal expenses. Paying off

the reinstatement amount will cancel the foreclosure and enable the homeowner to continue to live in

the home as if no default occurred. For many delinquent borrowers, however, reinstatement is not an

option because they are deep in debt and cannot make up back payments, plus other expenses.

 

Short-Sale

A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff,

meaning the lender will release the lien that is secured to the property upon receipt of less money

than is actually owed.


Short Refinance

In a short refinance, the lender may agree to forgive some part of your debt and refinance the

remaining debt into an entirely new loan.

 

 Special Forbearance

A forbearance is an agreement made between a mortgage lender and delinquent borrower in

which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower

agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her

payments. A forbearance agreement is not a long-term solution for delinquent borrowers; it is designed for borrowers who have temporary financial problems caused by unforeseen problems such

as temporary unemployment or health problems.Borrowers with more fundamental financial problems - such as having chosen an adjustable rate mortgage on which the interest rate has reset to a level that makes the monthly payments unaffordable - must usually seek remedies other than a forbearance agreement.

 

You may qualify for this if you have recently experienced a reduction in income or an increase

in living expenses. You must furnish information to your lender to show that you would be able to

meet the requirements of the new payment plan.

 

Mortgage Modification

A mortgage modification is a modification to an existing loan made by a lender in response to a

borrower's long-term inability to repay the loan. Loan modifications typically involve a reduction in the

interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or

any combination of the three. A lender might be open to modifying a loan because the cost of doing so

is less than the cost of default.  A loan modification agreement is different from a forbearance agreement. A forbearanceagreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an

existing loan.  You may qualify if you have recovered from a financial problem and can afford the new

payment amount. Most lenders can work with home owners even if they have poor credit and have a

foreclosure date. Chances to obtain a loan to regain a current status on your mortgage become

diminished once you have received a notice of default (NOD). Notice of Default is usually sent after 90

days of the mortgage payment being late.

 

Partial Claim

Your lender may be able to work with you to obtain a one-time payment from the FHA-

Insurance fund to bring your mortgage current. You may qualify if:

 

• your loan is at least 4 months delinquent but no more than 12 months delinquent;

• you are able to begin making full mortgage payments.

 

When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development

will pay your lender the amount necessary to bring your mortgage current. You must execute a

Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full.

The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell

the property.

 

Pre-Foreclosure Sale

For owners who don´t care to save the property, or who have no other choice than to let the

property go, selling the property may be a smart choice. If you have enough equity in the house to

allow you to pay off the mortgage in full, then a sale is usually your best option. This option preserv

your equity and what´s left of your credit score. Selling also leaves you in a much better financial

position should you want to buy another home in the future.

 

Deed-in-Lieu of Foreclosure

A potential option taken by a mortgagor (a borrower) to avoid foreclosure under a which the

mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange

for the release of all obligations under the mortgage. Both sides must enter into the agreement

voluntarily and in good faith.  A deed in lieu of foreclosure has advantages for both a borrower and a lender; mainly the avoidance of time consuming and costly foreclosure proceedings. In addition, the borrower avoids

some public notoriety, and may even be able to lease the property back from the lender.

 

The homeowner needs to assess certain risks which include, among other things, the risk that

the property is not worth more than the remaining balance on the mortgage and that junior creditors

might hold liens on the property.

 

This won't save your house, but it is not as damaging to your credit rating as a foreclosure. You

may qualify if:

 

• you are in default and don't qualify for any of the other options;

• your attempts at selling the house before foreclosure were unsuccessful; and

• you don't have another FHA mortgage in default.


The Foreclosure Process     Note: The following is a generalized breakdown of the foreclosure process. If you're interested in finding out about foreclosure laws in your state, please see our directory of Foreclosure Laws for All 50 States.

Foreclosure Defined
A foreclosure occurs when a property owner cannot make principal and/or interest payments on his/her loan, typically leading to the property being seized and sold.

Stages of ForeclosureThe foreclosure process is not very difficult to understand. There are several stages during which the homeowner has an opportunity to bring the loan current and avoid foreclosure.

After about three to six months of missed payments, the lender orders a trustee to record a Notice of Default (NOD). At the County Recorder's Office. This puts the borrower on notice that he or she is facing foreclosure and starts a reinstatement period that typically runs until five days before the home is auctioned off.

If the default isn't corrected (the loan must be brought current) within three months, a foreclosure sale date is established. The homeowner will receive a Notice of Sale, and this notice will also be posted on the property. In addition, the Notice of Sale is recorded at the County Recorder's Office in the county where the property is located. Finally, this Notice of Sale is also published in newspapers local to the county in question over a three-week period.

The foreclosure Trustee Sale typically occurs on the steps of the county courthouse in which the property is located. The time and location of this sale are designated in the Notice of Sale. At the Trustee Sale, the property is auctioned in public to the highest bidder, who must pay the high bid price in cash, typically with a deposit up front and the remainder within 24 hours. The winner of the auction will then receive the trustee's deed to the property.

Foreclosure Auction

At auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney conducting the sale, for the lender.

If this occurs, and the opening bid is not met, the property is deemed a REO or Real Estate Owned. This typically occurs because many of the properties up for sale at foreclosure auctions are worth less than the total amount owed to the bank or lender.

When you purchase property at a foreclosure sale, all junior liens other than property taxes are wiped out. Priority of liens is determined by the date of recording. When you purchase a REO aka. Bank REO, you will typically receive the property with a clean title

Bankruptcy

A Chapter 13 bankruptcy filing can stall or derail foreclosure proceedings. That's because of

bankruptcy's "automatic stay" provisions that force creditors to the sidelines while the bankruptcy

court sorts things out. The lender can petition the court to allow it to continue with the foreclosure,

depending on where you are in the foreclosure process, but it should buy you some time.

 

If there is no equity in the house (today's value less costs of sale less payoff balances on all

liens) the trustee in a Chapter 7 may abandon the house to you. That is, you keep it, as long as you pay

the mortgage.  A bankruptcy does not relieve the property of the liability for voluntary liens, like mortgages or

deeds of trust, nor for tax liens. So, the lender retains the right to foreclose if you don't pay.