What is a default

FAQ's (Frequently Asked Questions)

What is a default?

When used in connection with real estate, a default is defined as the failure to meet a financial obligation such as when you fail to pay a loan or mortgage as promised.

What is foreclosure?

The legal process initiated by a creditor (lender) to repossess the collateral (your property) for a loan that is in default. It is an involuntary repossession not unlike the repossession of a vehicle.

How much time do I have before my home is sold by the lender?

Foreclosure time varies from state to state. Local statute determines the minimum time a lender must allow. Lenders are free to postpone sales and negotiate a workout if they so choose, but will generally do so no more than twice.

Why should I avoid foreclosure?

The impact on your credit, the humiliation, the ability to buy property in the future, the ability to rent a residence are just some of the negative consequences of foreclosure. A foreclosure can stay on your credit record for 7 years. Additionally, since a foreclosure is NOT a negotiated settlement between you and the lender, you have no control and no say in the outcome, and may be held liable for the lender’s loss - known as the deficiency. Be aware that foreclosure sales notices are posted on your property (Notice of Sale) for all to see, and are published in a local paper for several weeks. Concurrent with a foreclosure/trustee’s sale, many lenders routinely commence with eviction proceedings.

My mortgage company won’t accept my payment, why?

Depending on how far you are into the foreclosure process, many lenders will refuse to accept payment unless it is the entire amount owed, plus late fees, interest, and attorneys’ fees. (A full reinstatement of your mortgage.) In their mind, you have demonstrated that you are no longer a good credit risk.

Why am I getting unsolicited mail, phone calls and people at my doorstep?

Foreclosure filings (notices of default - NOD’s) are public records. Anyone who is in foreclosure is subject to these solicitations. There are many honest, qualified people who offer their help, but there are a thousand times that number of crooks, scam artists, predatory lenders and other criminals looking to exploit your situation. Never, ever deed your property to a third party unless you have consulted with a real estate attorney. (Your property was the lender’s collateral when they made the loan. Deeding it without advising them is in violation of the terms of your loan. Normally that would trigger “acceleration” of your mortgage - making it due and payable immediately, in full. It does NOT eliminate any of your financial obligations and leaves you legally exposed.)

Why am I getting nasty phone calls from my lender?

Frequently, loans which are in default are referred to the lender’s collections department. As befits their name, their job is to collect. It is not uncommon for one department to be negotiating a short sale or other work-out, and for another to be making nasty collection calls.

I have income property. Are similar solutions available?

Yes.

What are my options?

1. Reinstatement - Reinstatement of your loan, and cessation of foreclosure proceedings, may be possible if you make a lump sum payment in an amount specified by your lender, by a specific date. The lump sum will include all delinquent payments, interest, penalties, legal fees and other charges imposed by the lender. Late payment entries to your credit report remain.

2. Forbearance - Under limited circumstances, your lender may agree to delay payments for a short period. (For example, if you were a victim of a natural disaster, or incurred another catastrophic, temporary setback). Lenders frequently combine a forbearance with a workout solution which will kick in once the forbearance period is over, or they’ll require that the loan be fully reinstated by a specified date. This is rarely a viable option unless you can clearly demonstrate that whatever caused your delinquency was beyond your control, and will likely seldom recur.

3. Repayment Plan - If your account is past due, but you can now make payments, the lender might agree to let you catch up by making an initial down payment, usually half the total owed (including delinquent payments, interest, penalties, legal fees and other charges), and adding a portion of the remainder to your regular monthly mortgage, for several months, until your account is current. Remember - the monthly payment is in addition to your regular mortgage payment.

4. Loan Modification - If any one or more of the original terms of the loan is changed, your loan has been modified. Lenders are reluctant to modify loans. In a modification, typically, all the delinquent payments, interest, penalties, legal fees and any other charges imposed by the lender are added to the principal balance, and the borrower’s payments are revised upward to include these. For a borrower who has already demonstrated repayment difficulty, modifying a loan is not an option the lenders readily make available.

5. Deed in Lieu of Foreclosure - When the lender allows you to give-back your property - and forgive or negotiate the debt. Lenders are reluctant to accept “deeds in lieu” because they now become the owners of the property, they become liable for taxes, insurance, upkeep, utilities, liens, and have to market and sell the property. Lenders are in the business of lending. Not property ownership. The lender may require that you attempt to sell the house for a specific time period (usually 90 days), before agreeing to this option. While not quite as severe as foreclosure, there remains a significant negative impact on your credit record.

6. Short Sale (Short Pay) - This is an agreement between you and the lender in which the lender agrees to accept an amount less than the outstanding debt as payment in full (and usually will either forgive or negotiate the balance). In general, a short sale may be defined as the sale of an asset for less than the loan balance.

What are the benefits of a short sale?

A short sale is a negotiated settlement. It is voluntary. Consequently, it is viewed in an entirely different light than a foreclosure - which is involuntary and is not negotiated. In a short sale, you are part of the process, and have some measure of control. If a bank “repossesses” (forecloses) your house, you have no say in the final disposition of your property and any resulting liability you may incur.

Can I try a short sale and another solution at the same time?

Not really. Each solution requires different standards of qualification. You cannot, on the one hand, attempt to build a repayment plan and demonstrate to the lender that you now have, and will continue to have, the means to make regular payments (in addition to making up the delinquency and all the other fees the lender has imposed), and, on the other hand, demonstrate that you have encountered impossible hardship, cannot afford to keep the home, and would like to short sell it.

Who qualifies for a short sale?

Anyone may qualify, provided that no fraud has been committed and genuine hardship (such as death, illness, divorce, loss of income, relocation, natural catastrophe, etc.) has taken place. The standards are set by the individual lenders.

How much do you charge?

There is NO CHARGE to you in a short sale. We are paid by the lender.

How much time do you need to stop the sale of my property?

It varies from lender to lender. Theoretically, a sale can be stopped at any moment. HOWEVER, some lenders will not even consider stopping or postponing a sale if negotiations with them commence less than 30 days prior to the sales date. NEVER, EVER, EVER drag your feet in addressing delinquency matters. Time is NEVER on your side.

How is my credit effected if I don’t pay the mortgage?

Every month that your payment is received late, or not received at all, the lender will report your account as being delinquent.

How long does it take to do a short-sale?

Depends on the lender, on how responsive and pro-active you are in resolving the situation, and on how quickly the property is sold.

Why can’t I deal directly with my lender/s?

You can. You are their client and they will speak with you. We as a company specialize in negotiating with lenders, have direct numbers to them, speak their language, know the pitfalls and the options, and have vast experience in dealing with them. If you need specialized help, you go to a specialist. We are specialists. If you “get it wrong”, the outcome may be unfortunate and irreversible. And, to reiterate: There is NO CHARGE to you in a short sale. We are paid by the lender.

Do I need to keep living in my house to qualify for assistance?

Typically, yes, but call your lender to discuss your specific circumstances and get advice on options that may be available.

What type of information should I have ready to discuss with a lender?

Typical information requested by lenders in a workout package include:

Brief explanation of circumstances

Recent income documents

List of household expenses

My employer has already announced layoffs within the coming months, what can I do now?

Through this website you have taken the first step toward educating yourself about available options. Determine if the layoffs will cause a financial hardship that will make it hard for your family to make your mortgage payments. If so, consider other resources that you have available to pay your mortgage. Review your spending habits and see where you can reduce spending. If you have a lot of consumer debt, consider contacting a nonprofit, consumer credit counseling agency. Take advantage of any employer offered resources. If you still believe that you will have trouble making your mortgage payments, contact your lender right away.

Will there be any out-of-pocket expenses I will be responsible for if I am approved for a workout option?

Some workout options do include expenses that the borrower is expected to pay, for example, recording fees for a loan modification. Because, every situation is different you should contact your lender for more information. However, if a lender has no contact with a borrower and has to start foreclosure, the legal fees that the borrower will be expected to pay can be very expensive. To avoid unnecessary legal fees, call your lender as soon as you realize you are in trouble.