Distressed Homeowners Issues
Often distressed homeowners do not understand all of the options that are available to them and can become overwhelmed sometimes to the point of giving up. Unfortunately, the failure to take action on a distressed property may result in the situation going from bad to worse. A good analogy would be to put a Band-Aid on a serious infection and expect it to get better by ignoring it. It may get much worse and need surgery if not treated. Don't underestimate the severity of the situation you are in.
In order to best understand your options, it is recommended that you consult with an attorney who is experienced in foreclosure defense and loss mitigation. He or she can advise you based on your specific situation. For instance, in Florida you hold the title to your home from when you purchase it until the Certificate of Title is issued in the foreclosure process. Some people believe that once the foreclosure has been filed that the home has been "foreclosed" and is owned by the lender. This is just not true. This means that you are still responsible for the property. Even if you move out, issues of liability, taxes, HOA/Condo fees, etc. remain your responsibility. Even people who declare bankruptcy and surrender the property discover that they still have some liability that cannot be released after the discharge. This is often a surprise for some people.
Assuming you do not qualify (due to income constraints, property type, etc) for a loan modification then you will need to prepare to vacate the property at some point in the future. While this can be delayed using good legal counsel, most loan modification requests and programs end up in total frustration and very few ever reduce your total amount due. If you owe more than your home is worth, a loan modification may allow you to stay in your home but may not be a good business decision. You do however, have options.
If you desire to stay in the home (or continue to collect rent from a tenant) as long as possible but eventually will need to vacate -
Some options for staying in your home include:
a.) Hire an attorney to fight the foreclosure as this may help to delay the inevitable. This needs to begin immediately after you receive legal notice that your lender has begun foreclosure legal action. Do not wait to respond as this may speed things along within the courts.
b.) Filing for bankruptcy will delay the inevitable as well if the home is included in the filing, you will of course, need to vacate the home when the lender sells the property at a public auction. Filing for bankruptcy can provide significant additional time in your home.
c.) Submitting an offer for a short sale to the lender will normally delay the sale date. Most courts will allow for a delay in a sale date if you can show a contract for the property and especially if you have an approval letter from your lender for a short sale. However, you must be diligent about this process. You should not wait until the final hearing or worse a sale date has been set to begin your short-sale.
If you want to get the property out of your name quickly and move on -
Some options for moving on include:
a.) In order to minimize your credit effects (usually only a couple of years) of a sale it is best to pursue a voluntary transfer of title. This can be done with either a short sale or a deed-in-lieu. If the lender is willing to take back the title (deed) and allow you be released of any remaining debt, this is a good option to follow. This usually works only when there are no other liens or mortgages against the property. A short sale in most cases also allows you to be released from the remaining debt. If there is more than one loan on the property or other liens they also will need to be negotiated.
b.) Do nothing and allow the lender to foreclose - this option usually leads to problems around the remaining balance after the sale. The lender can pursue a judgment and begin collection efforts to attach your bank accounts and assets in order to collect the balance. Your credit also can be affected for up to 10 years.
c.) Sell the property for as much as you can get and pay the balance to the lender with your money.