Frequently asked questions:

Where can i get more information about foreclosure laws?

A good reference to the foreclosure law in Virginia and other states can be found here.

How can I negotiate with my lender?

All across America, home owners face the risk of losing their homes as a result of foreclosure. In Arizona, the same crisis confronts people who are behind in their mortgage payments or who are counting the days until the foreclosure sale.
Whenever a homeowner faces the threat of foreclosure, it is important to take a step back and analyze his or her situation from the perspective of the lender. Though the home owner's primary objective may be to save his or her house, the lender's primary objective is to minimize the loss as much as possible to the company. In addition, if a home owner is to save his or her house from foreclosure, the home owner must analyze the situation from the perspective of the lender by 1) analyzing and determining the severity of the situation that caused the delinquency or default, 2) analyze his or her financial situation for the possibility of curing the default, and 3) identifying the best possible solution or alternative that the lender is willing to accept.
The policy of foreclosure prevention and minimizing a loss to the company is referred to as loss mitigation. Loss mitigation is a lender's corporate policy or procedures designed to find solutions and alternatives for the lender and home owner while keeping the best interests of the lender in mind.
It is the goal of any entity's loss mitigation policy to insure that losses and expenses are minimized and are generally in the best interest of the company, even if the home owner loses the home. The Federal Housing Administration (FHA), for example states in Mortgagee Letter 00-05 that the purpose of its loss mitigation policy is to "fulfill the goal of helping borrowers in default retain home ownership while reducing, or mitigating the economic impact on the insurance fund." The Department of Veterans Affairs (VA) states in VA Handbook H26-94-1, section 4.03 that "VA encourages holders to extend every reasonable indulgence to worthy borrowers who are in temporary difficulty. However, when it is evident that the default is insoluble, every effort should be made to see that the security [house] is liquidated promptly to minimize the loss to the Government." In all cases of loss mitigation policy, the lender will always try to find solutions that is the most financially sound for the corporation.
This does not state that the lender wishes to foreclose on every property that becomes delinquent or in default. Lenders are not in the business of foreclosing on homes; rather, a mortgage company will analyze the home owner's situation and if it is possible for the borrower to continue making payments (which is composes of both the principal owed against the home and the interest payments to the mortgage company), the lender will find a solution to help the home owner continue making principal and interest payments.
Foreclosure can be a costly and time consuming process for a lender. However once a lender has started foreclosure proceedings, it is often difficult for a home owner to reverse or delay the mortgage company. The home owner should act quickly to prevent foreclosure proceedings from starting.
If a home owner faces the possibility of foreclosure, the lender will try to contact the borrower as soon as possible in order to identify the reason for the default and demand payment for the delinquency. Most lenders will categorize the borrower's reason for the default into two categories: 1) hardships created by choice such as the purchase of a new, larger home and 2) hardships that are beyond the borrower's control, such as the loss of income due to unemployment or illness. Furthermore, the lender will try to determine the duration of the hardship. A lender will ask, "Is it a temporary set back where the borrower will be able to reinstate the loan or is it a permanent situation that will affect the borrower for the remaining term of the loan?" The answer to these questions will control the decision and alternatives offered to the home owner.
Once the reason for the default has been identified, most lenders will require financial data from the borrower. This may include personal asset statements, current income statements, paystubs from the employer, credit checks, and other information that will be used to determine the borrower's current financial status. The lender will try to determine if the home owner has the ability to pay the monthly mortgage payment and keep the account current. The lender will verify checking and savings account to determine if any cash can be applied to the total amount owed.
Stated in most loss mitigation policies, the preferred alternative for permanent hardships is a solution that separates the borrower from the property. On the other hand, lenders recognize that borrowers facing temporary situations are generally able to get back on track through short term repayment options.
The following sections outlines options, alternatives, and solutions for specific types of loans. The key to negotiating with your lender is knowing what the lender expects and the course of action it will employ when faced with a borrower's loan in default.

Through our 888-911-VEGA hotline, the Vega Counseling Agency has a primary mission: to help homeowners avoid foreclosure. We are an independent nonprofit organization that provides HUD-approved counselors dedicated to helping homeowners.

The help we offer is free.

Our counselors are experts in foreclosure prevention and trained to set up a plan of action designed just for you and your situation. When you talk to us, you won't be judged and you won't pay a dime. That's because we don't just offer general advice - we help you take actions. Counselors will arm you with education and support that assists you in overcoming immediate financial issues...at no cost to you.

What options are avaialble for a borrower?

The following section outlines many popular options a lender will offer to a borrower in default. It is important to remember that the lender may not want to work with a borrower. For help in determining which options are best for you, click here.

• Forbearance
  
Forbearance is an agreement between the lender and the borrower that reinstates the delinquent loan through the payment of a lump sum or a schedule of payments over a period of time. If a borrower is behind in his or her payment by $2,000, for example, the lender may allow the borrower to pay the money back through installment payments over six months. The lender may decide, on the other hand, to allow the borrower to pay a reduced monthly payment until the borrower has an opportunity to get back on his or her feet and pay any remaining arrearages in one lump sum.
The forbearance may be an oral agreement or written contract between the lender and the borrower. Generally these agreements will not exceed more than 12 months.
• Loan Modification
  
A loan modification is a change in any of the terms of the original note. This includes decreasing the interest rate, re-amortizing the remaining balance, extending the term of the loan, or other options at the lender's discretion to assist the borrower through a temporary set back.
Generally a lender will consider a loan modification when foreclosure is eminent and the borrower's income has been decreased or unable to make the mortgage payments, but will be able to keep the loan current after the loan modification.
• Mortgage Refinancing
  
Mortgage refinancing is an option where the lender would allow the borrower to refinance his or her existing mortgage, wrap in any late payments and fees, and cash out part of his or her equity in the home to allow the borrower to regain control of a debilitating financial situation.
Refinances are generally open to borrowers that face a temporary set back in their financial situation, have shown outstanding credit history in the past, and can prove that he or she can support the new mortgage payment.
• Second Mortgage, Line of Credit
  
A lender may offer a second loan or junior lien to a borrower in order to make up any back payments, late fees and other charges necessary to reinstate the loan. The borrower, in return, will be required to make an additional mortgage payment to cover the principal and interest payments on the second loan. Interest rates often rival credit cards and should be looked at with caution.
A borrower may also be able to borrower money from his or her bank or against a 401K or pension to use to repay the deficiency and reinstate the loan. Conditions may apply.
• Sale of the Home
  
Selling a home is an alternative for borrowers that are unable to reinstate the loan and face eminent foreclosure. This option allows a home owner to try to salvage his or her credit, pay off the loan, and retain any remaining equity in the home. By informing the lender of this option, the lender may delay the foreclosure proceedings in order to allow sufficient time to sell the home.
In certain cases, the lender may allow the borrower to sell the home when the proceeds from the sale are not sufficient to pay off the existing loan. This is known as a short sale. A borrower should check with his or her lender to discuss this option. Furthermore, the borrower may have to pay taxes on any loss the lender writes off from the short sale. A borrower should consult his or her tax professional before agreeing to a short sale.
• Deed-in-Lieu of Foreclosure (DIL)
  
A deed-in-lieu of foreclosure is a voluntary conveyance of title to the lender. Generally this is a last ditch effort by the borrower to avoid the negative consequences of foreclosure. In return for the voluntary conveyance to the lender, the borrower is often released of any personal responsibility for the mortgage.
In order to qualify for a DIL, most lenders state that there must not be a second mortgage or junior liens on the property. Properties with values in excess of the amount owed against the home (to include normal closing costs) should consider selling the property before voluntarily conveying the home to the lender.
There is free help and assistance for home owners facing the possibility of foreclosure. If you would like to talk with someone about your situation, click here.

Where can i find further help?

Contact the Vega Counseling Group or a HUD approved conseling agency.

Is Bankruptcy recommendable to avoid Foreclosure?

Many lawyers and so-called consumer advocates will preach the gospel of bankruptcy to any home owner facing foreclosure against his or her house. Filing bankruptcy, many explain, will stop foreclosure on the home and "save your credit" in the process.
The reality of this situation is bankruptcy should be considered as a last option. Filing for bankruptcy, whether it is a Chapter 7 or a Chapter 13 bankruptcy, will have only provide temporary solutions with lasting negative consequences.
Bankruptcy is a federal court action designed for consumers to assist them in repaying their debts (a reorganization bankruptcy) or eliminating the debts all together (a liquidation bankruptcy).
Reorganization bankruptcies are commonly referred to as Chapter 13 bankruptcies. Filing for a Chapter 13 bankruptcy immediately stops all creditors from taking further action against someone. With the assistance of a court appointed trustee, the court establishes a repayment plan to pay back all or part of the debts owing. This plan is based upon all non-exempt assets owned by the individual(s), the amount of non-exempt income, and the person's overall ability to pay back the debt. The repayment period generally last between three to five years.
Liquidation bankruptcies are commonly referred to as Chapter 7 bankruptcies. Like a Chapter 13, a Chapter 7 bankruptcy immediately stops all actions taken by creditors to collect on debts owed. Unlike Chapter 13 bankruptcy, a Chapter 7 liquidates the debts owed and wipes the slate clean. However, an individual will have to turn over all non-exempt property (or its cash equivalent) over to the court as payment for those debts. This includes real estate, cars, jewelry, furniture, investment accounts, 401K's, and other assets not covered in Arizona law. The entire process generally takes three to six months at most.
When facing foreclosure, an automatic stay goes into effect when bankruptcy is filed. This stay prohibits creditors from attempting to collect the money that is owed. This includes stopping the foreclosure process in its tracks.
Though this may sound like an easy solution to anyone's foreclosure woes, if a person is behind in his or her house payments, he or she will almost certainly lose the house under a Chapter 7 bankruptcy. In this situation, the mortgage company will petition the court to release the automatic stay in order to continue with the foreclosure process. A Chapter 13, on the other hand, may allow an individual to retain the house if the home owner is able to start making the normal house payments and repay any deficiencies through the court ordered repayment plan.
However, the bankruptcy court may order an individual to sell the house in order to use the equity to pay off some of the debt. In addition, filing for bankruptcy may result in the loss of other personal property. As mentioned before, an individual must give the court any non-exempt property in order to pay back the creditors. Non-exempt property may include family heirlooms, boats, cars, stamp or coin collections, expensive musical instruments, stocks, bonds, artwork, and other personal property.
Bankruptcy should not be used to stop foreclosure unless there are other mitigating circumstances that call for the protection of bankruptcy. Very rarely does a situation warrant the need for bankruptcy since there are many options available to a home owner facing foreclosure (to learn more about these options, click here).
It is important for someone to weigh every alternative available before deciding on a course of action. To sit down with someone for free to discuss your situation, click here.

More questions?

Contact the Vega Counseling Group or a HUD approved conseling agency.