Dealing with a Foreclosure
Updated: Jan 27
Homeowners across Long Island have been feeling the strain caused by the pandemic since March. For many, the pandemic meant layoffs or furloughs. Small business owners have also struggled to stay in business. With the CARES Act and other legislation passed at the state and federal levels, people could put off mortgage payments or restructure their loans to add the amount of the skipped payments to the loan’s backend.
Since the end of the summer, many people have been able to get back to work and school. However, the pandemic has not gone away, and many are feeling the effects of falling behind on bills and mortgages.
For many, the possibility of foreclosure is becoming a genuine possibility. Once you get so far behind on a mortgage and credit card debt, catching up on the debt can be incredibly difficult.
If you have fallen behind on your mortgage and are starting to get notices about your house being in arrears, there are options to avoid foreclosure, especially if you still have good credit.
Reinstatement is when you ask the bank to reinstate the loan. Reinstatement can work if you can explain the reason for the hardship, such as a job loss or divorce. For reinstatement to be an option, you will have to show that you are past your hardships, and you can pay the amount you owe and continue with the mortgage payments as before.
In some cases, you can ask to pay off the owed amount over several months. Your credit might have a negative mark on it, but you will be able to catch up on the loan and continue as before, saving your home from foreclosure.
Forbearance is when you ask the bank to add the amount you owe to the loan’s back end, extending the loan’s length. You may also ask the bank to forgive a portion of the amount owed. You may even ask for the entire amount to be forgiven. Many banks want to work with you to resolve your issues, especially now during the pandemic. They do not want to see people default, so they may be open to working with you to get caught up and get back on track with regular payments.
Loan modifications are also an option. A loan modification is when you renegotiate the terms of the loan. Typically, banks will not discuss a modification until a loan is in default. Due to the number of people having issues, some banks are willing to discuss a modification before the loan defaults.
Refinancing is an option for some people, but you have to meet some fairly strict criteria. If you refinance the loan, you are signing for a new loan with the bank and rolling in the amount you owe with the amount you still owe on the house. For this to be an option, you must have good credit, and you must show that you have equity in your home.
For many people who have fallen behind on bills, their credit might not be great, and if they already leveraged the equity built up in the home, a bank will not be willing to refinance.
Sell Your Home
For some people, selling their home may be a possibility, especially if there is equity built up in the home, and the cost of the sale can cover the amount in arrears and the remainder of the loan. In a place like Long Island, where many homes are selling above the asking price to people looking to get out of New York City, selling your home may be an option.
A short sale is another option that may not be available to everyone. A short sale is when you sell your house for less than the amount that is currently owed. A short sale can be a very long process since all liens must be satisfied for the sale to go through. If the bank does not approve the short sale, then the bank will proceed with a foreclosure.
Filing for Bankruptcy
Filing for bankruptcy is a big decision to make, and as we have discussed previously, there are alternatives to consider before filing for either Chapter 7 or Chapter 13 Bankruptcy. If you decide that bankruptcy is the right decision for you, the foreclosure process is halted. While there are allowances for your primary residence and other exemptions, it is not guaranteed that you will be able to keep your home. However, the bankruptcy process allows you more time and gives you more options than a bank foreclosing on your home.
As you can see, there are always options when we are dealing with being in debt and falling behind on your mortgage. The important thing is that you explore all of your options. If you see that you are starting to fall behind on your payments or that it is a real possibility, it is vital to speak with Kamini Fox to discuss your options. The earlier you begin to have these discussions, the more options you may have available to you.