You might be a down-on-your-luck homeowner, or a landlord struggling to make a profit from your mortgaged rental property. Whatever your reasons, you’ve been failing to make mortgage payments, but don’t want to foreclose.
Receiving a lis pendens – a legal term meaning “suit pending” – can be frightening, but be aware that even at this stage it is not a sure thing that you will be forced to take the matter to court, and it is possible to stop a foreclosure.
Orlando law allows a 2 to 3 month “grace period” after receiving a lis pendens in which you may negotiate a solution with your mortgage lender – so take advantage, and use the following guide to get yourself out of this situation.
Why you don’t want to foreclose
Allowing your property to foreclose can be a slap in the face for your credit score, resulting in a drop of 200 to 300 points. The Federal Housing Administration (FHA) will not approve home loans for any borrower with a credit score of less than 500 to 580 points, and major banks such as Bank of America and JPMorgan Chase rarely consider mortgage approvals for individuals with a FICO score (another name for credit score, named after the Fair Isaac Corporation’s scoring model) under 620.
Most banks will bar you from taking out another mortgage for up to 7 years after a foreclosure – or 3 years, if you manage to repair your credit within that time.
It gets worse: many employers look at your credit score as a measure of your reliability as a worker.
It sounds like a sick joke, but a single foreclosure can leave you struggling to get a job for years just to repair the damage to your credit score caused by that foreclosure. In time, you will be able to pay back all of your debt, and within 7 years the foreclosure no longer applies to your credit history – but until then, buying property, taking out general loans and even finding employment becomes a whole lot harder.
Stopping foreclosure: Communicate with your lender
It would be a mistake to think that your lender is against you. On the contrary, your lender wants to avoid resorting to the F-word as much as you do. Your best bet is to work with them to stop the foreclosure.
Orlando is in a mortgage state – meaning that foreclosure is a judicial process – in other words, you and your lender will be required to hire attorneys to reach a court settlement. This can be very pricey for both of you, but it’s worse for the lender, who takes over the responsibility (and expense) of marketing your property for auction – and auctions do sometimes fail, leaving the lender with a vacant property on their hands. This is the kind of liability property investors would prefer to avoid.
With this is mind, contact your lender and be straight with them: let them know that you won’t be able to pay back the full mortgage amount, and would like to make a deal to stop foreclosure.
Get professional advice and representation
Property law is a tricky landscape to navigate, and you can’t go it alone. If you’re determined to fight for ownership of your property, consider hiring a foreclosure defense attorney to represent you. Granted, this option is expensive and thus not available to everyone.
Sometimes a guiding voice over the phone is all you need. The Department of Housing and Urban Development (HUD) offers a toll-free hotline for homeowners facing foreclosure. Additionally, HUD can put you in touch with an affordable, approved housing counselor.
For professional advice from HUD, call: 888-995-HOPE (4673)
Loss Mitigation Programs
HUD’s Federal Housing Administration (FHA) offers a whole suite of options for homeowners across the country looking to avoid or stop a foreclosure.
In Orlando, it is possible to make your mortgage payments more affordable by having them adjusted to a fraction of your gross monthly income.
Depending on your circumstances and the real market value of your property, the FHA may be able to subsidize part of your mortgage, negotiate a lower mortgage settlement with your lender, offer you a special loan, or have your mortgage payments suspended for up to a year.
You really have nothing to lose by applying – the more dire your circumstances, the better your chances of receiving federal assistance.
If you’re willing to part with your property – which may just be the best option in the long run – a short sale allows you to sell to your lender or a third party for less than the full mortgage amount. You must receive approval from your mortgage lender (and, if applicable, your “junior lien holder” or secondary mortgage lender) to go through with this.
Because you are “selling short,” your lender will not necessarily exempt you from the remaining mortgage payments after the property is sold.
Nobody, however, benefits from trying to squeeze blood out of a stone, or money out of someone who has none. Your lender probably understands this; it’s just common sense. If you are genuinely unable to pay them back, and can offer proof that you’re in the middle of a prolonged financial rough patch, you have a much better chance of getting your lender to cut their losses and write off the debt.
Be aware that your lender might decide to report the short sale to one or more credit monitoring agencies, and you will have to wait two years on average to buy another property or take out another mortgage.
Deed in lieu of foreclosure
A deed in lieu of foreclosure is similar to a short sale, the exception being that ownership of the property is transferred to the primary lender only, for an amount that is at least equal to its fair market value.
This option is quicker and less costly than a foreclosure, is less detrimental to your credit score, and frees you of all obligations in regards to mortgage payments and upkeep of the property.
Unfortunately, if you have more than one lien holder (a party that holds a bond on your property until your debts are repaid), it is unlikely your primary lien holder will be willing to assume responsibility for the property, as it would assume the liability of the secondary lien holder as well.
Deed for lease program
Also called “mortgage for lease”, this Fannie May program allows a borrower to settle his/her mortgage payments by renting the borrowed property to the lender for 1 to 3 years.
The feasibility of taking this route is entirely down to your lender and whether you qualify for the program, i.e. whether your lender is an individual or group of individuals willing to live in the property on which you have defaulted for the length of time specified.
While your property is no longer your own for the duration of the rental period, it can be an interesting experience to be a landlord to your own mortgage holder – you may even feel like you’ve turned the tables on them – and soon you’ll earn back full rights to your property.
For more information on how to stop foreclosure of an Orlando home, contact us at: (321) 413-9088
… or fill out the form below, and we’ll get back to you.