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Foreclosure and Alternatives – What You Need to Know

Foreclosure is the process by which the lender takes the property back from the homeowner or forces the property to be sold at auction to the highest bidder, thereby causing the homeowner to lose their home. Foreclosure, in Michigan, is normally a non-judicial process known as “foreclosure by advertisement.” The lender initiates the process, after you have defaulted in payment, by publishing the property for auction sale in the legal news. The statute provides for four weeks of notice, but five is typically provided. At the foreclosure sale, the bank is typically the only bidder and it bids the fair market value (“FMV”) of the home up to the balance of the debt. Michigan is a “deficiency” state which means If the FMV is less than the outstanding debt, the bank can bid the FMV and then sue you for the “deficiency” which is the difference between the amount bid at the sale and the balance then owed on the debt. After the sale, the homeowner is then entitled to a six month redemption period (one year if more than 2/3 of the balance of the mortgage note was paid as of the foreclosure sale). After the redemption period expires, the lender will commence eviction proceedings in the local district court to evict you from the premises so they can regain possession of the home.

How to Save Your Home from Foreclosure

Chapter 13, Loan Mods and Short Sales are the Tools we Use

If the auction sale date is imminent, the only way to stop the sale absent the lender’s consent, is to file a Chapter 13 bankruptcy prior to the sale. After the sale – even by one minute – is too late. Chapter 13 can then allow you to repay the arrearage over a five year period and in the Chapter 13 case, opportunities exist to seek a modification of the loan terms. Chapter 13 is a great tool of financial crisis management in this instance. Another alternative is to seek a loan modification or the lender’s consent to allow you to do a short sale of the home. Though it is sometimes possible to do this after the foreclosure sale – it is a difficult, more risky process and whenever possible, should be avoided. Prior to the sale, however, loan modification and short sales are an available option if you begin the process before the foreclosure sale process has gone too far and the Lender will not agree to hold off on the sale. The key law we use to avoid the foreclosure and gain the modification or short sale is Regulation X. This regulation came into effect in January, 2014. Under the federal regulation, if you submit a complete modification request for assistance no later than 120 days after you have become late on your payment, the Lender must follow many procedural hurdles in evaluating your request. Even if the 120 days has run, we find that Lenders are fearful of being accused of violating Regulation X – so as long as there is ample time before the foreclosure sale, the normal process is to seek assistance under Regulation X to stop the process and then negotiate for a loan modification or a short sale – depending on the circumstance.

View Your House As An Important Asset Not As Your Life Itself

Keep in mind – your “home” is the abode you live in. It includes the memories, the people, the energy of family and, of course, emotion. Your “house” is the physical asset, the structure which you own and which is typically encumbered by a mortgage to a lender. The point is that if you are underwater on your house – a valid goal is to move your “home” to a different site and leave the “house” that is underwater. For some, this is a difficult coin to swallow. Staying in a house that is way underwater is throwing away your chance to accumulate savings for retirement. Depending on your circumstance – the best strategy with regard to the house you’re under water in is sometimes not to keep the house. If the mortgage far exceeds the market value of the house and the lender will not modify the mortgage so that the principal of the mortgage loan is approximate to the house’s value, you are smarter to get rid of the house and the mortgage, and replace it with a home equal in size and personal appeal but at the market price. In this case, a short sale is the better solution to your problem.

Another strategy that we employ to address an underwater property is to discharge your obligation to pay the mortgage debt through a bankruptcy filing. By doing this, you keep the home as long as you want to by making the payments, but when you decide you want to get rid of the underwater home, you stop paying and tender the home back or allow it to then go through the foreclosure process. Since the bankruptcy terminated your obligation to pay, you are no longer bound to make the payments and you can’t be sued on the debt.

The foreclosure process triggers many intricate issues – requiring an analysis of whether a loan modification can be achieved or should be achieved, bankruptcy advantages, short sale opportunities and deficiency exposure. The last thing you should do is try and sort this out on your own – there are too many moving parts and options you won’t even know exist. Help is precisely what you need – and you should seek it as early in the process as possible.

Copyright - Thav Gross©
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