OPTIONS BEFORE LENDERS FORECLOSE.
Q My home is going into foreclosure. What are the ramifications?
A Foreclosure is not the end of the world and, for some, it may even make good sense. In every event, it should be considered only after consulting with a financial adviser or knowledgeable attorney.
The notice of default on your loan as well as the foreclosure proceeding will appear on your credit report. This will make it difficult -- but not impossible -- to get a loan or even rent a house for several years.
California law provides that a bank or lender cannot seek anything other than ownership of the foreclosed property, which it then resells.
If the holder of a second mortgage forecloses, the resale of the property includes the first deed of trust. This means that the buyer of the property must also take over the first mortgage.
However, if the first mortgage holder resells the property first, the second mortgage-holder is "cut off." That lender can sue the former homeowner for repayment of the debt.
There are also potential tax ramifications arising from foreclosure, such as forgiveness of indebtedness and of indebtedness income. There also may be capital gains issues that should be discussed with your accountant.
Q Is there anything I can do to stop a foreclosure?
A There are many ways to attempt to resolve a potential foreclosure, but they need to be taken early in the process. The deeper into the foreclosure process one gets, the fewer options there are.
The first solution, obviously, is to repay the delinquent portion of the loan, including interest, late fees and miscellaneous costs.
The California Civil Code allows the delinquent amount to be paid up to five business days before the date of the foreclosure sale. Many lenders will even accept payment during that last five-day period, but don't rely on it.
An alternative is to negotiate repayment with the lender, such as adding the amount of a payment or two back onto the loan.
Another solution is to sell the home prior to foreclosure, especially if you have equity in the property.
If the property is "upside down" -- that is, you owe more than it's worth -- you still may be able to sell the home through a "short sale." This means the lender agrees to accept less than the full amount due rather than going through the lengthy process of foreclosure and resale.
Many people think that another option is to file for Chapter 7 bankruptcy, which involves a liquidation of all unsecured debts. However, Chapter 7 will only stall rather than resolve a foreclosure.
A better bankruptcy alternative is Chapter 13 protection, which allows delinquent amounts to be repaid over a three-year period. The lender has no choice but to accept this three-year repay plan. Of course, any mortgage payments that come due after bankruptcy is filed must also be paid.
If a person has the financial ability, this is a good way to require a lender to take a repayment over a three-year period.
Finally, you can simply choose to let the property go to foreclosure. You can live in the home free of charge until the foreclosure sale. After that point, you may face eviction and could be charged rent during that period of time.
David R. Hagen, a past president of the San Fernando Valley Bar Association, has practiced bankruptcy law in Woodland Hills for over 20 years.
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Jul 10, 2008|
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