While the state of the credit market has made refinancing your property more difficult, it may still be a possibility. If you can refinance you may be able to pay off your old mortgage and start anew with a better rate and lower monthly payments. For your personal residence, under the Housing and Economic Recovery Act of 2008, you may qualify to convert your variable-rate loan into a 30-year fixed mortgage insured by the Federal Housing Administration. There are many requirements to qualify for this program so you will need to consult with a trusted mortgage professional or a nonprofit housing counselor in order to apply. Please call us if you would like any recommendations.

 

If you have missed mortgage payments you have the right to make up those payments and reinstate your mortgage before your property is sold in a foreclosure sale. In Washington State you have until 11 days before the date of the foreclosure sale to reinstate your mortgage by making up any missed mortgage payments, pay all penalties and default interest that has accumulated as a result of your missed payments, and pay the lender his foreclosure costs up to that point. If you do not reinstate your mortgage prior to 11 days before the date of the foreclosure sale, your lender can accelerate your mortgage and require you to pay the entire balance of the mortgage in order to stop the foreclosure sale.

 

If you have sufficient cash on hand to reinstate your mortgage you may also be able to negotiate with your lender (see below). Most lenders are reluctant to foreclose because of the expense and hassle of trying to sell the property.

 

If you anticipate being unable to make a mortgage payment or have already missed a payment, the best thing you can do is talk to your lender as soon as possible. You may be able to negotiate with your lender to: 1) temporarily postpone or forbear monthly payments; 2) arrange for repayment of missed payments either concurrently with your monthly payments or at the end of your mortgage; 3) lower your interest rate and thus lower your monthly payments; or 4) reduce your principal mortgage balance.

 

Washington has recently enacted legislation to crack down on scammers posing as distressed home consultants so you should be careful in choosing an individual or agency to negotiate with your lender on your behalf. If you are unsure about how to do this we can assist you in the negotiation process with your lender.

 

A short sale is a negotiated sale in which your lender agrees to allow you to sell your home for less than what you owe on the mortgage. Short sales have gained in popularity as of late because they can save the lender the hassle and cost of foreclosing on the property while allowing the homeowner to get out from under the debt associated with the home. 

 

Negotiating a short sale can be a lengthy and difficult process. In most cases a lender will not consider a short sale unless you have a bona fide offer from a potential buyer. This can be frustrating because you won't know in advance what the lender is willing to settle for. It is helpful to work with an experienced real estate professional to assist you in finding the price that will be acceptable to your lender and potential buyers. You can also work with our office to assist you with the negotiations with your lender to receive approval for the short sale.

 

If there are second or third mortgages or other liens on the property the process can become further complicated.  You must convince all of the lienholders to accept a buyer's offer. If the offer will produce little or no money for the secondary lienholders they will have no incentive to release their liens and clear title for the buyer. You would still remain liable for what you owe to them, essentially defeating the purpose of the short sale.

 

Short sales may also create unexpected tax consequences. In specific instances the government may treat the amount of your loan written off by your lender as taxable debt forgiveness income. This can happen if the loan forgiven or written off was for any purpose other than acquiring or improving your principal residence. You can avoid this tax liability if you can prove that you were legally insolvent at the time of the short sale. Insolvency is when the amount of your debt is more than the total value of your assets. This tax liability can also be eliminated by filing for Chapter 7 or Chapter 13 bankruptcy before escrow closes on the short sale.

 

Signing a deed in lieu of foreclosure with your lender transfers the property back to the lender so that no foreclosure is necessary. Before signing a deed in lieu of foreclosure you should have a written agreement that your lender will not seek a deficiency judgment for the difference of the value of the home and the balance of the mortgage. If there are secondary mortgages or liens on the property, a deed in lieu of foreclosure may not be a good option because those encumbrances will likely remain with the property. Furthermore, a deed in lieu of foreclosure may also create unexpected tax consequences. In specific instances the government may treat the amount of your loan written off by your lender as taxable debt forgiveness income.

 

It can be difficult to get a lender to accept a deed in lieu of foreclosure. Lenders prefer cash to real estate especially in today's market where many lenders already own hundreds of properties that failed to sell at foreclosure sales. Because your lender would rather have you sell your property, your lender may require you to put your home on the market for a period of time before it will accept a deed in lieu of foreclosure.

 

Filing for bankruptcy under Chapter 13 or Chapter 7 of the bankruptcy code can help delay foreclosure proceedings, eliminate other debt that is keeping you from making your mortgage payments, and possibly allow you to keep your home. Filing for either type of bankruptcy will immediately halt any foreclosure proceeding through what is called the automatic stay. The length of time the stay remains in effect depends on the type of bankruptcy you file.

 

A Chapter 13 bankruptcy requires you to devise a debt repayment plan to make up missed mortgage payments and pay off a percentage of your other debts. The plan must be approved by the bankruptcy court and must provide for repayment in three to five years. If you stick to the plan through completion your remaining unsecured debt will be discharged and you will keep your home. By completing your Chapter 13 repayment plan you can eliminate liens created by second and third mortgages so long as they are wholly unsecured by your home.

 

A Chapter 7 bankruptcy can delay a foreclosure but typically will not prevent it from ultimately happening. If you are current on your mortgage payments a Chapter 7 bankruptcy can help you eliminate your unsecured debt and free up money to put towards payments on your mortgage. If you are behind on your mortgage and are willing to give up your home, a Chapter 7 bankruptcy can eliminate most of your debts so that you can start fresh after the foreclosure. 

 

Bankruptcy is a very complex legal process. You should seek our advice before attempting to file for bankruptcy on your own. 

 

Understanding the foreclosure process itself can be very beneficial in determining what strategy you will employ when faced with the possibility of foreclosure. In Washington, practically all foreclosures are nonjudicial, which means that they are performed without court supervision. Washington law prohibits lenders who use a nonjudicial foreclosure from seeking a judgment against the homeowner for any deficiency between the sale price of the foreclosed home and the mortgage balance. In order for a foreclosure to be legal it must strictly comply with the statutory requirements found in RCW 61.24.

 

Washington law requires the foreclosing party to first serve a notice of default on the homeowner 30 days before a notice of trustee's sale and notice of foreclosure is served. The notices must be served by both first-class mail and by registered or certified mail, return receipt requested, and by either posting the notice on the premises or by personal service on the homeowner. The notice of trustee's sale must be recorded in the auditor's office and published in a legal newspaper in the county in which the property is located. The foreclosure sale cannot take place until 90 days after the notice of trustee's sale is served. If you lender fails to follow any of the statutory foreclosure requirements you have grounds to contest the foreclosure. 

 

In conclusion, many of these processes are not intuitive and the legal rules and regulations can be quite tricky to navigate. It is best to work with a professional who understands these laws and can provide you with the best assistance possible. Please contact our office if you would like to discuss some of these options.