Foreclosure is scary but once you understand that you do have options, you will feel better. Every state is different in its foreclosure laws and while each bank also does things a little different, this article gives an overview of some of the more popular options available in Illinois.
If your home is in foreclosure, the three most common ways to stop it are:
- Loan Modification
- Short Sale
- Chapter 7 or Chapter 13 Bankruptcy
A loan modification is just what it sounds like- your existing mortgage is re-structured. The goal is to make your payments more affordable. You may or may not end up paying more interest or extending out the time frame remaining on your loan, and there are different ways that this can be done. Lending rules change constantly. It is normally handled by working with your lender to find out what you can qualify for. Not everyone is guaranteed to be able to get a loan modification and in my experience, they are often times a longshot, sometimes lowering the mortgage temporarily before being told that the homeowner actually doesn't qualify.
A short sale means that you cannot get enough money through the sale of your house to pay off your existing mortgage(s). Essentially, your bottom line is coming out “short” on funds. Who takes the hit on the shortage? In a short sale scenario, you are asking the lender to take the hit and not you (if you were taking the hit, you would need to bring a check to closing which, presumably, you can’t do because you are in a hardship of some sort). Whether or not your lender is willing to take the hit on a short sale depends on a number of factors but generally will come down to the bank’s bottom line after a cost-benefit analysis. Before your bank gives short sale approval, you need to have an offer from a buyer. There is no guarantee that the short sale witll be approved, or if it is, that it will happen in time to beat the clock of the foreclosure process. If you do get an offer, the bank doesn’t have to approve the contract and without that approval, there is no short sale. As with loan modifications, no one is guaranteed a successful short sale.
A bankruptcy filing will stop a foreclosure dead in its tracks. The foreclosure case comes to a screeching halt and generally goes in one of two directions. In a Chapter 7 bankruptcy, the house is not “saved” as you still have to pay to keep your house (chapter 7 does not eliminate most secured debt, like a house). Many people who realize that their situation is permanently changed and that they can no longer afford their house chose to walk away from it. Chapter 7 allows debtors to do that without fear of a deficiency judgment, or having to still pay the note. Some homeowners decide that they want to keep their house and can start making their regular mortgage payments again, but they have the problem of all of the missed mortgage payments that racked up while they were undergoing financial problems (sometimes it’s a period of unemployment, legal problems, illness, etc). A properly structured Chapter 13 plan will allow those missed payments to be paid over a three to five year period- which is far more time than a bank would allow if it were up to them (Pay now!).
If you are facing a home foreclosure, the absolute worst thing that you can do is ignore it. It’s not going away. Many people who talk to an attorney to explore the possibility of bankruptcy feel a lot better once they have had a chance to discuss their situation. With two locations in the Chicago suburbs (Itasca and Schaumburg), we are here to serve you. Contact O’Connor Cadiz Law today for a no obligation, no cost consultation about bankruptcy or a short sale.