| Regrettably, this is the day and age where a | | | | income was significantly reduced as a result of |
| prevalence of foreclosures keeps creeping closer and | | | | entering active duty and that this has caused your |
| closer to home. Many hopeful sellers are wondering | | | | financial hardship. If you qualify, this benefit is |
| what is involved in a foreclosure and what steps can | | | | retroactive to your date of enlistment. |
| be taken to thwart such an occurrence. Following is a | | | | 2. Additional Forbearance |
| timeline of events when a property becomes | | | | In certain cases related to the financial hardship |
| "delinquent" on payments. | | | | usually associated with the loss of greater civilian pay |
| Breach Letter | | | | the veteran may request special consideration in the |
| The Breach Letter is a formal letter sent to you in an | | | | form of a reduction in the monthly mortgage |
| attempt by the lender to avoid foreclosure action. | | | | obligation. The difference between the scheduled |
| The lender hopes this letter will encourage you to | | | | payment and the reduced payment is referred to as |
| contact them to work out an agreement called a | | | | arrearage by Fannie Mae. Upon release from active |
| Foreclosure Workout. With the age of foreclosures, | | | | duty the borrower is responsible for bringing the |
| we have seen the case where a homeowner is | | | | arrearage current. Note: Most lenders will not normally |
| delinquent by 3 months, or more, and still hasn't | | | | foreclose on a delinquent borrower that has been |
| received this letter. | | | | granted Military Indulgence. In fact, it is Fannie Mae's |
| Foreclosure Workout (Reconveyance, Forbearance, | | | | policy to offer the borrower Additional Forbearance in |
| loan modification) | | | | this situation. If you cannot make payments you |
| Foreclosure workout assistance is typically done | | | | should seek a court order granting a stay of the |
| during the initial phase of the pre-foreclosure stages. | | | | mortgage obligation until you're released from active |
| Lenders are more than willing to attempt a plausible | | | | duty. |
| scenario to stop the delinquency and bring the loan | | | | Assumption: An enforceable "due-on-sale" clause is |
| current. There have been occasions where the lender | | | | waived to allow a qualified buyer to assume the |
| is willing to lower interest rates, change adjustable | | | | mortgage of a delinquent borrower. |
| rate mortgages to fixed, forgive delinquent amount | | | | Pre-Foreclosure Sale |
| owed and even wipe out junior liens they may hold if | | | | In order to avoid foreclosure, the lender and |
| the value of the property is less than what is owed. | | | | borrower agree to accept the proceeds of the sale |
| If a work out plan is not initiated within approximately | | | | to satisfy a defaulted mortgage even if the sale |
| 45 days of the Breach Letter your case is normally | | | | results in less than the mortgage balance. In order to |
| referred to an attorney to file foreclosure action. | | | | be eligible for this option you must be experiencing |
| Attorney Referral | | | | financial hardship as a result of involuntary reduction in |
| The lender will refer your case (delinquent loan) to an | | | | income and an unavoidable increase in expenses that |
| attorney or trustee, usually with 90 to 120 days, who | | | | exceed income. Unavoidable causes include: |
| then files a petition in court to foreclose your | | | | 1. Lay-off or loss of job |
| mortgage and get the lender the right to sell the | | | | 2. Disability, or prolonged illness |
| home to pay off the outstanding balance of your | | | | 3. Death of a mortgage contributor |
| loan. The average time between attorney referral | | | | 4. If self employed, a business set-back |
| and the foreclosure sale varies by state. In California, | | | | You will have to accept the following conditions: |
| an NOD (Notice of Default) can be filed 90 days | | | | 1. Listing the property for sale will not delay initiating |
| after a mortgage payment was due. With current | | | | or continuing foreclosure action, but theterms of the |
| regulations in CA, the lender now needs to personally | | | | agreement will be honored pursuant to a sale before |
| contact the homeowner to advise them of their | | | | the foreclosure date |
| rights, what steps can be worked out, etc, before a | | | | 2. You agree to maintain the property |
| NOD can be filed. | | | | 3. You agree to off-set any of the lenders losses |
| Junior Lien holders | | | | (usually negotiable) |
| These are also know as secondary or other lien | | | | 4. You may have a tax liability if any of the debt is |
| holders. It refers to lenders, people or the | | | | forgiven. There are specific laws in place |
| government who may have a recorded lien against | | | | (both Federal and State) which override this |
| the property. Your primary lender may contact junior | | | | possibility. |
| lien holders to determine the status of your loan with | | | | 5. The property is free of liens. If other liens exist, |
| them. Once contacted these other lien holders may | | | | the lender must agree to the workoutpursuant to |
| initiate separate foreclosure action to protect their | | | | the eligibility requirement for an assumption |
| interest pursuant to the terms and conditions of the | | | | 6. The lender retains the right to negotiate and |
| mortgage or deed of trust. In today's market, we | | | | approve the transaction. |
| are seeing less and less junior lien holders filing for an | | | | Deed-In-Lieu of Foreclosure |
| NOD because the value of the property is less than | | | | This method, offered to homeowners by the |
| what any junior lien would receive in a trustee sale. | | | | defaulted lenders, is established to avoid foreclosure |
| Any junior lien holder is still responsible for senior liens. | | | | by voluntarily surrendering the property by deeding it |
| Note: Most lien holders readily agree to participate in | | | | to the lender as satisfaction for the debt. It is |
| the workout solution. | | | | appropriate when . . . |
| Temporary Indulgence | | | | 1. The property has been on the market as a |
| A grace period, usually 30 to 60 days, may be | | | | Pre-foreclosure Sale for three or more. |
| granted to allow you to bring the mortgage current. | | | | 2. There are legal obstructions to foreclosure action |
| If requested, you will have to demonstrate evidence | | | | 3. Deed-in-lieu allows the lender to take possession of |
| that you can bring the loan current such as proof | | | | the property sooner than would be possiblethrough |
| that you have one of the following conditions: | | | | foreclosure. |
| 1. Have a contract for the sale of the property and a | | | | You may be eligible for this option if you meet |
| closing date. | | | | certain hardship requirements outlined in this |
| 2. Have an insurance settlement or one pending. | | | | document and all junior liens are removed. Many |
| 3. Have or are pending an approved funding from | | | | individuals who have gone this route later realize that |
| another source. | | | | their credit isn't salvaged by doing a Deed in Lieu and |
| 4. Have an approved "Relief Provision" completion | | | | shows up on their credit report just as derogatory as |
| date. | | | | an actual foreclosure. |
| Special Forbearance | | | | Forbearance (repayment plan) |
| The suspension of payments for a specified period | | | | This is a formal Repayment Plan and it is based on |
| of time, usually no more than 18 months, from the | | | | the Special Forbearance provision and is the preferred |
| date of the first payment. At the end of the | | | | workout option because it is the least costly workout |
| suspended period the borrower may be expected to | | | | alternative. It is usually considered when delinquency |
| resume payment under a Liquidating Plan. This plan is | | | | is the result of; |
| used to assist borrowers experiencing a temporary | | | | The death of a contributor to the monthly mortgage |
| loss, or reduction, in income that is expected to be | | | | payment and this does not necessarily have to be a |
| restored at a later date. Most lenders provide Special | | | | person on the mortgage; or Illness, catastrophe, or |
| Forbearance in any situation for which there is | | | | natural disaster for which the borrower is not insured; |
| documentation and relief is warranted. | | | | or Any similar or contributing factors. Repayment |
| Long Term Special Forbearance | | | | plans may be customized to fit most any need or |
| In certain situations Special Forbearance can be | | | | solution, however they cannot exceed 24 months. |
| extended up to 24 months. | | | | Modification (replacement mortgage) |
| Military Indulgence | | | | This is a change to the terms of the mortgage in |
| If you had a mortgage as a civilian and then later | | | | order to remove a delinquency and avoid foreclosure. |
| entered the military, you may be entitled to Military | | | | Modification includes reducing the interest rate, |
| Indulgence granted under the terms of the Soldiers' | | | | extending the term of the mortgage, negative |
| and Sailors' Civil Relief Act. There are two | | | | amortization, replacing an adjustable rate with a fixed |
| components of this provision: | | | | rate and capitalizing the delinquent payments. |
| 1. Interest Rate Reduction | | | | Modification is appropriate when the potential for a |
| This requires the lender to reduce the interest rate | | | | Repayment Plan is needed due to a permanent or |
| to 6% from the time the borrower begins active | | | | long term reduction in income. Other lien holders |
| duty to the date of release. However, just entering | | | | having a recorded interest in your property must |
| the military is not enough; you must show that your | | | | agree to subordinate their interest to the new loan. |