- Do what you can to avoid foreclosure.
- Consider the HAMP program as your first choice.
- The FHA short refinance program will reduce your monthly payment.
What are my alternatives in Missouri to foreclosure, and what are my potential liabilities?
I recently put my Missouri house up for rent and rented an apartment for my daughter to go to school, and recently I have gotten 2 months behind on my payments, I am paying for a mortgage and an apartment which is beyond my means of income ; it is at the end of the lease with the tenant but wanted to know since my mortgage company denied me a modification of my loan can is it the same to file bankruptcy and "to surrender the house" or do the "lieu of deed" process? I was trying to keep it the property but it is drowning me in finances. Help I am in need of advice of either moving in and trying to save the property or can I walk away even in the bankruptcy like the "lieu of deed" process?
If you fail to make your mortgage payments you are in default. If you default the mortgagee (the lender) will initiate the foreclosure process. Foreclosure is almost always the result of default on payment. Foreclosure is the legal process through which mortgagee claims an asset from the consumer borrower. Because foreclosure is expensive and usually results in a poor return, lenders do not like foreclosure any more than homeowners do.
If your intention is to remain in the property, consider HAMP, HARP, or the FHA Short Refinance Program. However, if you want to quit the property, then consider HAFA. We discuss each of these below.
The Home Affordable Refinance Program (HARP), which was initiated by President Barack Obama, is available to residents of their homes whose first mortgage is no more than 125 percent of the property's current market value. It is open to open to homeowners whose mortgage is guaranteed by Fannie Mae or Freddie Mac. Borrowers must be current on their mortgage, but at risk for foreclosure. To qualify a homeowner must also not owe more than $729,750 on a single-unit home, and their monthly mortgage payment must come to more than 31 percent of their gross income.
HARP is related to the HAMP program. The goal of HAMP was to get 500,000 risky loans under trial modification by November 1, 2009. Approximately 650,000 trial loan modifications went into effect by December of 2009. Mortgage lenders willing to modify loans receive incentives from the U.S. Treasury under HAMP as part of the Troubled Asset Relief Program (TARP).
To date, HAMP has already helped create more than 112,000 permanent loan modifications for borrowers who are facing foreclosure. Of those, 66,465 have been accepted by borrowers. Another 46,056 are waiting for signatures from homeowners. Overall, the program has produced more than 1.16 million trial-period plans. HAMP's goal is to help 3 million to 4 million people who may be facing a foreclosure and the program runs through 2012.
As of December, 2009, 787,231 trial loan modifications are active through HAMP. During the fourth quarter, the number of active and permanent modifications increased 75 percent.
When the program was announced, its stated goal was to help between 3 million to 4 million homeowners decrease their mortgage payments, while also helping people avoid foreclosure.
To learn more about this program, see the Bills.com article Is the HAMP Program Right for You? To get started with HAMP loan modification, go to the Home Affordable Refinance Program Web site or contact your creditor directly.
Home Affordable Refinance Program (HARP) allows home owners to refinance their existing mortgages to current low interest rates. It is designed for homeowners who are current on their mortgage payments but are unable to refinance to a lower interest rate because their home values have decreased.
Home Affordable Foreclosure Alternatives Program (HAFA)
The Bills.com article on the guidelines for HAFA provides information on the federal government programs and discusses the differences between short-sales and deed-in-lieu foreclosure. If your servicer (financial institution who loaned the mortgage) participates in the federal program, then the servicer must follow the guidelines and deadlines set out. Also, you, as the borrower, must also be eligible for the Home Affordable Modification Program (HAMP) as set out in the program guidelines.
Many servicers do not have a specific person to handle an individual case until an offer is received. However, with the new guidelines, deadlines, and streamlined forms, a borrower has more options and the servicer has more incentives to avoid foreclosure. One provision is that the servicer must provide information to the borrower pertaining to the sale price and why an offer is refused.
FHA Short Refinance Program
The Federal Housing Administration (FHA) initiated a government loan program to assist homeowners who have seen their property values drop. The program, called the FHA Short Refinance, began on September 7th, 2010 and is slated to run through December 21st, 2012. The goal is to help borrowers in a negative equity position refinance into a more secure loan. Under the FHA Short Refinance program, a lender reduces the principal balance on the mortgage. The reduced-balance loan then passes from the private hands of the lender or investor that owns the loan to a loan that is guaranteed by the federal government. Previous government programs attempted to aid those who are behind on their mortgage payments. The new FHA Short Refi is targeted to borrowers who are current and can afford their payments, and borrowers who could not qualify for the different loan modification programs available.
Because the lender in the FHA Short Refinance program reduces the principal balance on the mortgage to below 100% and refinances the new balance with today's rates, the FHA Short Refinance program is worth investigating further. See the Bills.com resource FHA Refinance to learn more about the FHA Short Refinance program.
You mentioned walking away from the property, which I assume you mean not attempting a short sale. If you do so, the mortgagee will foreclose. It will sell the property at auction, which will almost certainly result in a deficiency balance.
A deficiency balance arises if the sale proceeds are not sufficient to pay the entire balance owed on all secured loans. The consumer may be liable for the difference. Some lenders may forgive a deficiency balance in a short sale, but not all do.
Generally speaking, it is unsound economically for an original creditor to sue for the deficiency because the debtor usually does not have the financial resources. After all the debtor would not have defaulted if they could have afforded the payments, in most cases.
Original creditors rarely choose to litigate a deficiency balance case. Instead, the original creditor will sell (also called assign) a deficiency balance account to a collection agent. Typically, unsecured debts such as deficiency balances, credit card debt, medical bills, and payday loans are sold for pennies on the dollar. Despite the bargain-basement price of a collection account, a collection agent has the legal right to collect the face value of the account. If a creditor files a lawsuit and wins, it may be able to obtain a judgment, which could lead to wage garnishment, bank levies, and/or property liens, depending on the defendant's state laws.
Mortgage Foreclosure Missouri
You mentioned you reside in Missouri. Missouri has not banned the collection of deficiency balances on short sales or foreclosures. If a foreclosure results in the sale of the property for less than the balance of the loan, then the mortgagor/debtor is liable for the deficiency balance. See Missouri Revised Statutes Chapter 443 for details. See the Bills.com resource Missouri Collection Laws to learn about your rights and liabilities as a Missouri resident.
Foreclosure and Anti-Deficiency Laws Make a Difference
You mentioned bankruptcy. You can resolve a deficiency balance or deficiency judgment in bankruptcy or debt settlement. Bankruptcy is a complicated process. Chapter 7 and Chapter 13 bankruptcy are the options appropriate for most consumers seeking debt relief. Unfortunately, after the passage of the Bankruptcy Reform Act in 2005, it became harder to file for a liquidation bankruptcy, and there is now more complexity to an already intimidating process. Filing bankruptcy can be difficult and, though a consumer can do themselves, I advise consumers to consult with an attorney licensed in their state to ensure the filing is completed accurately.
Debt settlement is an alternative to bankruptcy. It is also called debt negotiation, and is the process by which creditors agree to forgive a part of a balance, saving the debtor up to 60% of the original balance. The debtor pays the new agreed-upon sum. A debtor can negotiate directly with creditors or hire a debt settlement service to negotiate for you.
Get Debt Assistance through Bills.com Debt Navigator
Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.
Apply for HAMP first. If you are unsuccessful, then consider the FHA Short Refinance Program. If you do not qualify and cannot afford to remain in your home, ask your loan servicer about putting the home on the market in the HAFA program. Do what you can to avoid foreclosure.