Deed in Lieu of Foreclosure

Home Affordable Foreclosure Alternative via a Short Sale

This is where your property is sold for less than the value of the outstanding amount left on your mortgage. In other words once the property is sold you would normally still have an amount of money left owing which you would still need to pay. But in the HAFA program this amount is written off by the lender so you never have to pay the outstanding amount. This is providing the lender agrees to the sale terms prior to putting the house on the market.

The mortgage is effectively settled in full using the funds raised in the sale, even though it is less than the outstanding amount owed.

Home Affordable Foreclosure Alternative via a Deed in Lieu of Foreclosure

This is where the ownership of the property is transferred voluntarily** to the lender in settlement of the total amount outstanding on the mortgage. There may be a requirement by the lender that the property is listed and marketed as being for sale by the homeowner before the arrangement for a deed in lieu is agreed. The property must also be free of all other encumbrances such as second mortgages or liens i.e. there should be no reason that the property cannot be marketed and sold.

** A lender cannot offer a deed in lieu of Foreclosure arrangement to a borrower, the borrower has to approach the lender and volunteer to enter into a deed in lieu of Foreclosure agreement.

Eligibility Criteria for the Home Affordable Foreclosure Alternative

• The loan owner is not eligible for HAMP (Home Affordable Modification Program)
• The loan owner is delinquent on a HAMP modification, i.e. having been offered a permanent modification to a loan, repayments have subsequently been missed
• The loan owner failed to successfully complete the HAMP trial period. The trial period is where you have to successfully meet the new payments agreed during a modification agreement before you are offered a permanent modification i.e. you have to prove you can make the payments before the modification is made permanent.
• The loan owner has to apply for a ‘short sale’ or ‘deed in lieu of foreclosure’

Additional Information

The homeowner must be assessed by participating servicers for other loan modifications or retention programs that they offer before offering HAFA.

Participating servicers (in line with their policies) must consider eligible home owners for HAFA before allowing a pending foreclosure sale to continue.

Related Articles

• Benefits of a Deed in Lieu Foreclosure
• How a Short Sale Can Prevent a Foreclosure

So first of all, what does HAMP mean to anyone facing foreclosure when their lender has decided to participate in the Home Affordable Modification Program.

Any mortgage provider who participates in the Home Affordable Modification Program cannot refer a loan for a foreclosure sale, or take action on a foreclosure sale for loans that are eligible for the program until the mortgage holder/homeowner has been evaluated for HAMP, and if the homeowner is eligible a trial modification offer has been made.

So once a mortgage servicer participates in the HAMP program they are obliged to make reasonable efforts to get in touch with any homeowners entering the foreclosure stage i.e. the stage where they would previously have been progressed to foreclosure, to find out if they are eligible for the program. This could include personal contact with a homeowner, but that is at the discretion of the lender and is more likely to be in the form of a letter.

So the good news is that while under consideration or during the trial period, you cannot be progressed to foreclosure. Also once in the trial period and after making the first trial period payment, the lender cannot take the first legal action to initiate a new foreclosure. Of course if you fail to make the trial period payments, you will not be offered a permanent modification and you will be back to square one where foreclosure may be progressed.

Secondly with respect to unemployment, if you find yourself unemployed you can ask participating lenders to consider you for a new Home Affordable Unemployment Program referred to as ‘UP’.

If you were already into a trial period with HAMP and lost your job, you can ask to be considered for ‘UP’ only if you entered the trial period before missing 3 full consecutive payments.

It’s also worth checking now if you are eligible for ‘UP’ where you were previously not eligible for ‘HAMP’ because the eligibility criteria is different. In other words if you are unemployed, you may not be eligible for ‘HAMP’ but you may be eligible for ‘UP’ otherwise known as the Home Affordable Unemployment Program.

If all else has failed and foreclosure is looking unavoidable there is another extension to the Make Home Affordable program called Home Affordable Foreclosure Alternatives (HAFA), which provides 2 options to foreclosure. These are a ‘Short Sale’ option or a ‘Deed in Lieu of Foreclosure’ option. Both of which you can find out more about via the link.

Working to Avoid Foreclosure

There are some possibilities in negotiation and making adjustments to your mortgage agreements with your lender. Lenders do not want homes on their hands that they must sell. They do not want bad loans hurting their businesses. The government wants people to stay in their homes and there are government programs such as the Make Home Affordable program that has been introduced as part of Obama’s new stimulus package that may be of assistance if you are in or near foreclosure.

But if your home mortgage is in default and you have been served notice of foreclosure the most effective way to resolve the situation is to get serious about finding additional cash to clear your outstanding payments. The more you are in arrears the harder it will be to catch up, however, catching up is possible.

• Look at your finances. Where can you cut corners and where can you find more income, a 2nd job like bar work for example? What can you do without and what can you sell or return? Be ruthless if you want to save your home. Your home should be near the top of your list of things to pay, right after food and health care. Everything else can wait, including Internet service, cable TV, dining out, second and third vehicles, credit cards and other debt. If you are about to lose your home your credit rating is already in the tank, so it doesn’t matter if you let other things slide. Losing cable TV will not hurt your family; losing the home will hurt them and take you a longer time to recover from.
• The time to reconsider expenses and your finances is at the first moment you realize you cannot pay everything, not when you get your sheriff’s eviction notice. Do not delay in addressing this serious problem. Take a look at stock market investing software to see how much risk you can take on in your portfolio in these hard times.
• Talk with your lender. See if there are programs, government sponsored or otherwise, that you can use or if payments could be delayed to the end of your contract. Locate your loan documents and read the fine print regarding foreclosure procedures. Look up your state laws so you know where you stand and a time-line. Check with non-profit government agencies that may be able to help you, like HUD (US Dept of Housing & Urban Development) or other housing counselors. Maybe you can do a short sale and get out of your mortgage and then start over.
• Know the law regarding foreclosure. In most situations you have to be at least three months behind on your mortgage before the lender takes action. Then you have more time until the sheriff seizes the property for public auction. Even if your home is foreclosed upon and sold at auction there is a recovery period during which time you can reclaim your home if you can get caught up on the payments.
• Do not get caught up in any housing recovery scams and do not sign anything you do not thoroughly understand.

Prevention is better than cure, don’t get a mortgage you can’t afford. Before you even get in trouble you can look at mortgage software to see how changes in the interest rate can effect monthly payments.

Work hard, raise money and try to save your homestead!

In a nutshell a short sale allows you to sell your house for less than the value of the mortgage on it and pay off as much of your mortgage as you can with the agreement of the mortgage lender. On some occasions the mortgage lender may write off the outstanding amount but this is not always the case and you may have to make arrangements to repay the balance at some point in the future or through reduced payments.

Find out more about Short Sales and how they work.

If you are serious about avoiding foreclosure the worst thing you can do is ignore the letters and the problem. The more payments you miss the more difficult it will become to resolve the problem and loosing your house will become more likely.

So make sure you contact your home lone mortgage lender as soon as you become aware that you have a problem. There will be options available to you to help you through your financial difficulties and mortgage lenders really do not want your house, they would prefer that any financial problems are resolved. Some of the options are home loan mortgage refinancing and loan modification but there may also be alternative options.

Open and read all correspondence from your lender, apart from anything else the information provided may include suggestions for avoiding foreclosure. You are also likely to have any proposed legal actions against you outlined and you need to be aware of these, not opening your mail cannot be used in your defense or as an excuse if you end up in court.

Take the time to read and understand your loan documents so you know what your lenders procedures are if you do not meet your repayments. Also be aware that foreclosure laws and time frames are different in each state so find out what the rules are in your state, you can inquire at the State Government Housing Office.

If you need further help and advice you can contact a HUD approved housing counselor, this service is usually free and you can Find a Counselor near you using this link.