Luetzelschwab Law, LLC - Estate Planning and Administration, Consumer Defense - Foreclosure Defense and Prevention: Your rights as a homeowner

ALTERNATIVES TO FORECLOSURE IN INDIANA

Indiana homeowners have several options for preventing or stopping foreclosure sale, up until the sheriff's hammer comes down. Which options you have, however, will depend on where you are in the foreclosure process, and what resources you have available. Most options fall under one of the following:

Alternative 1: Reinstatement

A reinstatement may be appropriate if your problem paying your mortgage is temporary, and you have the money available to make a payment large enough to bring your loan current all at once.
To reinstate, you have to make one lump-sum payment to pay all of your missed payments, plus any late fees or penalties, to the date of the reinstatement.
A lender is required to allow you to reinstate your mortgage, even up to the date of the sheriff's sale - but the payment amount must be the full amount (including all interest accrued through the date of the payment). Many lenders won't accept a payment that is even a little bit short, and will return your payment as being "insufficient."
However, if you will continue to have problems making the regular monthly mortgage payment going forward, or if you are thinking about using funds from a retirement account to reinstate your mortgage, you should first consult with a housing counselor, foreclosure defense attorney, or bankruptcy attorney to discuss other options.

Alternative 2: Repayment Plan

If you are not that far behind on your payments, and you have enough money to temporarily pay a higher mortgage payment, you might be able to get caught up through a repayment plan.
Your lender will require you to make up the missed payments over a fixed period of time, usually less than a year.
Each month, you make a larger payment, which is essentially your regular mortgage payment, plus an extra amount to get caught up. In some plans, the lender also requires a lump sum payment at the beginning or the end of the repayment plan.
If you miss or are late with a payment (or even worse, two payments), you may be dumped from the repayment plan, and be put back into foreclosure.
But, if you make all of the required monthly and/or lump sum payments, then you will resume making just your regular mortgage payment going forward.

Alternative 3: Forbearance

If you are temporarily unable to make your mortgage payments, your mortgage company might consider you for a forbearance plan.
In a forbearance, the lender suspends or lowers your payments for a specific amount of time, usually 3 months. This gives you a breather while you get back on your feet - for example, if you were laid off for an extended period of time but recently started a new job.
The reduced payments will most likely be reported to the credit bureaus as being late, which will probably hurt your credit score.
Forbearance is not a cure to foreclosure, but it can help you get through a brief rough patch. It can also give you enough time to pursue another foreclosure alternative, such as a modification or selling your home.
However, if you cannot currently afford your payments, and your financial situation is not likely to change anytime soon, forbearance is probably not your best option.

Alternative 4: Refinance

In a refinance, you take out a new mortgage to pay off the old mortgage.
Refinancing may be possible if your credit score is still good, you have regular income, and you have equity in your home.
However, if your credit is bad, you have missed several mortgage payments, and/or you have too much other debt, you may not be approved for a new mortgage loan.
If you want to try refinancing, contact a legitimate lender and proceed carefully. Review all documents, and watch for large fees and high interest rates.

Alternative 5: Loan Modification

If you still have regular income, but it isn't enough to pay your monthly mortgage payments, then you may be considered for a loan modification.
In a loan modification, the terms of your mortgage loan are permanently amended and, in most cases, the payments will go down
The modification process and results will vary, depending on who owns your loan, who services your loan, who insures your loan (e.g., FHA, Fannie Mae, Freddie Mac, or a private insurer), and/or your individual financial situation.
The most common changes to the loan are:
- Extending the terms of the loan, to allow you to make the payments over a longer period of time (for example, changing your 30-year mortgage to a 40-year mortgage);
- Lower the interest rate; and/or
- Adjusting the principal balance.
Many lenders also require borrowers to complete a "trial period plan" before issuing a permanent modification. During this probationary period, if you make all the trial period payments, the lender is supposed to consider you for a permanent modification. Unfortunately, not all lenders will actually approve a permanent modification. In addition, the lower payments are typically reported to the credit bureaus as being "late," which damages your credit score.
The most well-known modification program is the Home Affordable Modification Program, or "HAMP." More information about HAMP is available here.
If you do not qualify for a HAMP modification, or if your lender does not participate in HAMP, your lender may still consider you for an "in-house" or "proprietary" modification.
To get a loan modification, you must apply for one with your loan servicer. You can get free assistance with the modification process from a HUD counselor in your area or through the Indiana Foreclosure Prevention Network.

Alternative 6: Sell your home

If you can't afford to continue making payments, you should consider whether or not it makes sense to sell your home to avoid foreclosure.
If the net sale proceeds are more than what you owe, then you do not need the lenders' permission to sell your home, and you would keep any money left over after paying off the mortgage(s) and closing costs.
If, however, you owe more than what you can sell the property for, the bank may agree to release its lien on the property in exchange for less than the full amount owed. This is called a "short sale."
The short sale process requires approval from the lender before the deal can close. In addition, anyone who has a lien on the property and the private mortgage insurer, if there is one, must also agree to the short sale.
A short sale does not automatically release you from all liability for the loan balance after the sale proceeds are applied to the loan (a "deficiency"). A lender may require a borrower to make a payment toward the loan at the closing, and/or sign a new note for the deficiency (or some portion of it). A lender may also sell the deficiency to a debt collector, who will continue to pursue you for payment.
One way to avoid liability for a deficiency is though a HAFA short sale. If you meet the initial HAMP eligibility requirements, even if you are denied a HAMP modification, then you can be considered for HAFA.
The process requires the borrower to apply for a short sale, usually after the house has been listed with a realtor and an offer received. A good realtor will also assist with the application process.
Many realtors now specialize in short sales; ask any potential realtor if he or she has successfully negotiated a short sale before, or if they have received any training specifically on the short sale process.

Alternative 7: Deed in lieu

If you have tried to sell your home for at least 3 months, but have not had any decent offers, your lender might be willing to take a deed in lieu of foreclosure.
A deed-in-lieu is where you give the house back to the lender instead of going through the entire foreclosure process.
Do not ask for a deed in lieu if you have equity in the property or when a short sale is possible.
The lender will not accept a deed in lieu if there are any other mortgages or liens on the property.

Alternative 8: Bankruptcy

NOTE: This discussion is merely a brief overview of bankruptcy and how it relates to preventing foreclosure; if you think you might want to pursue bankruptcy, contact a bankruptcy attorney, or check out information available elsewhere on this website or through the National Association of Consumer Bankruptcy Attorneys.

If want to keep your house, but also need a more global solution to your debts, or if you want to walk away from your house without owing any deficiency, then you should at least consider filing bankruptcy.
There are four types of bankruptcy, each named after its respective chapter in the bankruptcy code. Of these four, the overwhelming majority of individuals file under either Chapter 7 (asset liquidation or "fresh start") or Chapter 13 (the repayment plan).
If you have not filed for bankruptcy before, then all foreclosure proceedings are automatically and immediately "stayed" (put on hold) the moment the bankruptcy petition is filed. If you have filed for bankruptcy before, then there may or may not be an automatic stay; this is something that your bankruptcy attorney should address.
What happens next depends on several factors, including whether you are filing under Chapter 7 or Chapter 13, how much income you have left after paying household expenses, whether you are current on your mortgage payments when you file, and whether you qualify for a loan modification.
If you are current on your mortgage payments, but need to get rid of overwhelming credit card debts, then filing bankruptcy under Chapter 7 may give you enough breathing room to continue making your mortgage payments. However, if you are behind on your payments, and you don't get a modification, you may still lose the house to foreclosure.
If you are not too far behind on your payments, you might be able to use Chapter 13 to repay the past due payments (and all the fees that accrued while you weren't making payments) over 36 to 60 months. You will make monthly payments to the trustee, who will distribute the payments to your mortgage company and other secured creditors (e.g., your car payment), along with trustee and attorney fees and, if your income is high enough, to unsecured creditors (e.g., credit cards).
Although bankruptcy has helped millions of people keep their homes, it will not prevent all foreclosures, and in some cases, can make a bad financial situation worse. Whether to file, and/or when to file, should be determined only after meeting with a qualified bankruptcy attorney.