Pre-Bankruptcy Alternatives To Save Your Home In Fort Lauderdale, West Palm Beach, And Miami
- Reinstatement – This is the full payment of all past due amounts in one lump sum. It includes the unpaid mortgage payments, interest, escrow shortage, and the lender’s foreclosure costs and attorneys fees. Many clients borrow the money from a family member. This option should be considered if due to a change in circumstances you will be able to resume making the regular mortgage payments, and also pay back the family loan. If you do not have the ability to fund a cash payment then a Chapter 13 bankruptcy should be considered.
- Forbearance – This is the lender’s agreement to defer/suspend its right to foreclose. The lender may require monthly payments in an agreed amount that will be applied to the mortgage pursuant to the loan documents. This option can be helpful if you anticipate a significant change in circumstances that will enable you to reinstate prior to the expiration of the forebearance period. Otherwise, we should consider a Chapter 13 plan with up to 60 months toreinstate the mortgage.
- Mortgage Modification – This is a change in the terms of the mortgage loan documents to achieve a lower monthly payment. This could include reduction of the interest rate, extension of the loan term, and/or deferment of principal. The lenders require hardship letters that explain why you defaulted on the mortgage,and the changes that enable you to now make the monthly payments. A successful loan modification also has the advantage of keeping a foreclosure and/or bankruptcy off your credit report. In the U.S. Bankruptcy Court For The Southern District Of Florida (www.flsb.uscourts.gov) this alternative is also available during bankruptcy via the Mortgage Modification Mediation Program (MMM).
- Refinancing – This is the utilization of a new mortgage loan to payoff the existing mortgage. This option requires that you have equity in your home, and is useful when the new mortgage loan has a lower monthly payment.
- Deed In Lieu Of Foreclosure – If you can not (or elect not) to save your home, this is one option. Instead of the filing of a mortgage foreclosure lawsuit, you deed the home to the bank. In return the bank should defray a portion of your moving expenses (“cash for keys”), or allow you to remain in the house for an agreed period of time after delivery of the deed (“time for keys’). If the lender is not cooperative then we will consider a Chapter 7 bankruptcy, where you can cancel the mortgage deficiency as well as your credit card debt.
- Friendly Foreclosure – This is similar to No. 5 above, but the lender needs to foreclose your mortgage to extinguish junior liens on the property (e.g. junior mortgages; judgment liens). In consideration of your agreement not to defend/protract the foreclosure case you receive “cash for keys” or “time for keys”.
- Short Sale – In this option the lender agrees to accept less than the balance due on the mortgage to facilitate your sale of the house. For example, the market value of your house is $250,000.00, but the balance due on the mortgage is $ 300,000.00. The lender agrees to accept $ 250,000.00, and record a Satisfaction Of Mortgage. One issue that frequently arises here is whether the lender will pursue you for the deficiency. The other is a tax issue. If the lender forgives the deficiency, this is “forgiveness of debt” income that you must report on your tax return (whereas cancellation of the deficiency in Chapter 7 Bankruptcy is not reported as income on your tax return).
The above descriptions are summaries and issues inevitably arise in every case. Call Todd Frankenthal to discuss loan modification and other Pre-Bankruptcy Alternatives! Todd has offices in Ft. Lauderdale, Florida and Boca Raton, Florida.