Unfortunately, there may come a time in our lives where will face the fact that it may be best to ‘cut our losses and run’. This couldn’t ring truer for those who find themselves unable to afford their mortgage and who are on the verge of losing their home. If you find yourself in this position, understand that there is help for you, and it may be in your best interest to consider a short sale on your home to avoid the risk of foreclosure.

In order to proceed with a short sale of your home, understand that it is advisable for you to enlist the help of a real estate agent. He or she will be familiar with the necessary procedures and will be there to guide you through each step of the negotiations for a short sale on your home. The term ‘short sale’ simply implies that they current market value of your home is far less that what you currently owe on it. As a result, it’s important to contact a real estate professional who will assist you in navigating this tricky process.

Don’t feel ashamed if you find yourself in this type of situation. At least three-quarters of well-known housing markets in the US have suffered the same effects of continuing price decreases. As mortgage rates continue to increase, we find that the values of homes are steadily decreasing. In conjunction with rising mortgage rates, home owners also find that other vital items such as food and gas continually rise, leaving them with little money left to pay their mortgage at the end of the month. Usually a short sale is a result of their inability to keep up with rising costs.

As with any short sale, your lender must be fully aware from the beginning that you are putting your house on the market. Furthermore, it’s important to understand that compared to a conventional sale, there will be more paperwork required to be completed during a short sale.

Once you’ve given your permission in writing to sell the home, you lender will communicate with your real estate agent throughout the process. You will be required to document the exact reasons why you cannot continue paying your mortgage, commonly referred to as “proving hardship.” Usually in these cases you’ll be asked to provide not only a letter of explanation, but also copies of your credit card bills, bank statement, W-2s and any other supporting documents to help your claim.

When going through a short sale, do not automatically assume that hardship will free you from the debt you owe. In some cases this has proven true due to the fact that lenders don’t wish to accumulate a mass of homes on their books, however, do not walk into the situation assuming that this will be the case for your situation. Usually a lender will approve a short sale simply because it saves them time and money as opposed to your home going into foreclosure which is even more costly.

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We want to help. We realize that it’s stressful and challenging to be at risk for losing your home but the reality is that the foreclosure system is not going away. This means that if you are a homeowner who is facing a foreclosure and is at risk for foreclosure due to lack payments, you need to explore your options in terms of being a homeowner in foreclosure.

The process of foreclosure is not the same everywhere. As a matter of fact, there are laws that differ from state to state. This means that if you are a homeowner in foreclosure, you need to know what the laws are in your particular state or the state where the property is. Some states allow up to 180 days for the entire foreclosure process. Other states may allow as little as 60 days for the entire process. Knowing how much time you have makes a significant difference in whether or not you lose your home with respect to the amount of time left.

If you are a homeowner who has not yet gone into the foreclosure process, you are in an excellent position. There are many home loan modification programs that you can explore to find out which program might be best for helping you to save your home from a foreclosure.

One common myth that gets many homeowners in trouble with the foreclosure process is that they believe they have to wait until foreclosure proceedings have been started or until they receive a notice of default in the mail. This is the furthest thing from true. If you are aware that you are going to be late on even one payment, you can take steps to ensure that your home does not go into foreclosure.

One of the first steps that your lender may encourage is for you to apply for a refinancing loan. While this is not a viable option for everyone, it is an option for those who have good credit and are in otherwise good standing on their mortgage. If you qualify for refinancing, it will be possible to get a lower rate which will give you lower payments that you can afford. This keeps your home from going into foreclosure proceedings entirely.

If you do not qualify for a refinance program, the next option to consider is a home loan modification. There are many home loan modification companies who employ modification specialists who can work with the lender on your behalf to get a new loan with lower payments and the default amount written back into the loan which brings your loan current, stops foreclosure proceedings and allows you to keep your home.

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Whether or not to reaffirm a secured debt, under §521(2)(A) of the Bankruptcy Code, used to be a no-brainer. Because the act of reaffirmation did far more for the creditor than it did for the debtor, the advice most commonly – and properly – given by bankruptcy attorneys to their clients was as follows: If you want to keep the property securing the debt (most commonly the debtor’s house or car), select the option known as ‘retain and pay’. The creditors’ urgings for reaffirmation could generally be ignored without serious consequences.

But all that changed under the BAPCPA, effective October, 2005. As of this writing, the majority of districts having ruled on the issue do not, under the new bankruptcy law, recognize the ‘retain-and-pay’ option. That is, if a debtor attempts to proceed under that option, there is a very good chance that the creditor may file an adversarial action challenging the debtor’s option.

Upon filing a Chapter 7 bankruptcy petition, a debtor must, within 30 days of that initial filing date, file a ‘statement of intention’ with respect to any debts secured by assets of the bankruptcy estate. The debtor then has, under §521(2)(B), 30 days from the first date set for the §341 creditors’ meeting to “perform his intention” (e.g. file a reaffirmation agreement) with respect to the secured property. With respect to that statement of intention, the options are as follows:

Surrender

The easiest option for the debtor is simply to surrender the asset to the secured creditor. For example, the debtor’s vehicle may be worth less than the amount owed to the lender. If the debtor is finding the monthly payment to be onerous, it may make sense for him to simply allow the creditor to retake possession of the vehicle. After the creditor sells the car at auction there is typically a deficiency, which debt is simply discharged along with the rest of the debtor’s unsecured debts.

Redemption

An option rarely exercised by debtors is to redeem the asset from the creditor by purchasing the asset for the fair market value, with the balance of the debt balance to be discharged. Because the debtor is required to pay the redemption amount in a lump sum payment, this option is rarely used in the case of vehicles, and is generally used only in connection with consumer goods, such as household appliances purchased using a purchase money security interest (PMSI).

Reaffirmation

The option most commonly used with regard to the debt (i.e. mortgage) secured by a debtor’s home. Because reaffirmation requires the debtor to forgo the discharge to which they otherwise would have been entitled, reaffirmations were rightly disfavored prior to the 2005 passage of the BAPCPA. That is, if the debtor later (i.e. after the bankruptcy case is closed) defaults the creditor is entitled to exercise any and all rights available under state law as if the bankruptcy had not taken place. In other words, the debtor would be liable for any deficiency after Sheriff’s sale.

Retain and Pay

In situations where the debtor desired to keep the property, but did not want to risk being “on the hook”, as with reaffirmation, in the event things would turn south for him after the bankruptcy, this is the option that made the most sense. But as explained above, this option has been lost in most districts as of October, 2005. Careful discussion with an experienced bankruptcy attorney is therefore vital to determine if this option is still available in the debtor’s district, and if not, which of the other three options is best under the debtor’s particular circumstances. The option selected by the debtor has critically important consequences for him.

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Sometimes in the foreclosure process a person finds that there is no way for the lender to modify the mortgage. The mortgage company cannot reduce the monthly mortgage payment low enough. The person facing foreclosure still cannot even make the new lower payment.

The person then has two choices, either sell their home or let the foreclosure go through and turn their home over to the mortgage company. Turning their home over to the mortgage company is the less desirable choice. So they decide they will try to sell their home.

They contact a realtor and place it on the market. It is priced reasonably but a long time passes before an offer comes in. The offer they get is very low. In fact, the offer is less than the balance on their mortgage.

This is known as a Short Sale. The home may be sold for less than the mortgage company is owed on it.

What happens when an offer like this is made?

The person cannot accept the offer on their own. Since the mortgage company will get less than what they are owed on the mortgage, they have to either approve or reject the offer.

Most mortgage companies have a loss mitigation department which handles all mortgages in foreclosure. The sales contract has to be sent to them. They will review it and determine whether or not they will accept it.

What will this loss mitigation department look at?

Most have fixed guidelines they follow. They want to make sure that through this Short Sale they will recover most of the money that they are owed on the home. Typically they will look at what they stand to lose if they acquire the home through foreclosure and have to sell it on their own. If they lose less money on a Short Sale than by selling it on their own, they will approve the Short Sale

In making their decision the loss mitigation department looks at how much equity is in the home. They also look at what the current value of the home is. They also look to see if they are any second mortgages or liens on the property. If there are, the holders of the second mortgages or liens may have to approve of the Short Sale.

Frequently it takes a long time before the mortgage company makes its decision on a Short Sale. Buyers are not aware of this. Unfortunately most mortgage companies do not regularly keep the parties informed on a Short Sale.

Weeks and even months can go by without the mortgage company communicating to anyone. This is frustrating to buyers. Some decide that the home isn’t worth it. They back out of the contract when they can legally.

With the rising number of foreclosures mortgage companies are willing to approve more Short Sales now. However, there are still many instances where they are rejected. If the Short Sale is rejected, the home has to be listed for sale again. The person facing foreclosure is now further behind.

If the mortgage company approves the Short Sale, the sale goes forward. The proceeds from the sale are sent to the mortgage company. Normally the mortgage company forgives the balance that was due on the mortgage.

Because Short sales need the approval of the mortgage company and because the process can be complex, the person facing foreclosure should not handle this on their own. They should seek the assistance of a lawyer or an expert in Short Sales.

Waiting for approval on a Short Sale does not stop the foreclosure process. In some instances, the short sale is not approved and the closing does not occur in time in time to save the person from foreclosure. This just makes a horrible situation worse. This is another reason a person facing foreclosure should not handle a Short Sale on their own.

In the past any person who stopped the foreclosure through a Short Sale had to declare the amount of money that the mortgage company forgave as income on their tax return. They were liable for tax on it. In 2007 congress passed a law amending the tax code. President Bush signed this into law. This amendment stipulates that from January 1, 2007 through December 31, 2009 no person who paid a mortgage company less than they owed on a mortgage will have to pay tax on any part of the debt that the mortgage company cancelled.

With any Short Sale, the person’s credit is affected. Their credit scores drop. The Short Sale appears on their record for seven years. They typically will not be able to get a mortgage to purchase another home for several years.

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Bankruptcy is supposed to be the best solution for people having a very high debt. This is their solution to end or secure their economic troubles and debt. Many people view bankruptcy as the only means of getting out of their financial problems. Several people even think that bankruptcy is only available alternative in situations where the struggle with finances becomes so horrendous and one gets completely trapped up.

However, various studies have been made on this very subject, and the answer to the question, if bankruptcy is the only solution to your debt problems is so not true. Many people are of the view that it is the best available option but they are unaware of the other options. People mostly become sick and tired of constant debt problems and continual reminders from the creditors, and to find a way out of that misery they simply go for bankruptcy and start over again with a new life without repeating the former financial mistakes.

Usually, clients do not realise the fact that bankruptcy is not the only option to go for in the crucial financial times. In fact, those who file for bankruptcy may possibly end up with further more financial problems. This applies to the companies or firms that end up making you pay more than you need to.

The procedure to file for bankruptcy is no more an easy thing to do due the changes in the bankruptcy law. Now, it requires court’s approval to file for bankruptcy, otherwise it will not work. Moreover, it is also a compulsion to disclose the actual and appropriate financial conditions to the court as per court requirement.

One of the best ways to proceed further before jumping to do things yourself is to find a good bankruptcy lawyer. Although, a good lawyer may cost you a lot of extra money, however, it will pay off in the end. Those who file for bankruptcy on their own without consulting a lawyer may usually end up making many mistakes. On the other hand, consulting a relevant lawyer will help you in analysing the fiscal conditions more appropriately.

This will lead you towards the direction that you need to take. In the end, they will find out whether bankruptcy is the best option for you or not. If bankruptcy is your main option, they will show you as to how you need to present your case in court so as to increase your chances of being approved. Finding a good lawyer costs a lot of money, but it will also save you from having to dig into your property and will also save you money. Lawyers who deal with bankruptcy cases on daily basis know all the tricks of the deal.

The process of getting bankrupt is actually quite simple. Firstly, you are required to complete the declaration forms available at the local court. Then, you are supposed to provide the details of the money you owe. After that, you will have to pay the court fee and administration dues. Following the above steps, bankruptcy order will be issued. You will then need to meet the Official Receiver in order to ensure that you meet the conditions of the bankruptcy. This will include discussing your debts. As soon as the bankruptcy takes effect, you will be not able to acquire any other type of debt solution. The duration of bankruptcy usually lasts for about one year.

As a customer, there are different types of bankruptcy options that you can file for depending upon the situation you are in. Each case will be assessed independently, and then a decision will be made on each one.

Doing the accurate amount of research and finding a good lawyer before jumping to filing for bankruptcy will help you a lot and will definitely pay off in the end. Bankruptcy does have long term negative effects, so taking other available options may be the best thing to do in some cases.

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Bankers love fear, and they want you to freeze and do nothing, it makes them millions every year. A lot of people think that they can do nothing to stop foreclosure. This could not be further from the truth, you can stop it, in fact it can be easy to do so. You just need to understand some simple strategies.

Stall and delay with forms and letters until you have a clear way out

A lot of people are hearing about loan modifications and short sales, and they think that this is going to save them. Well, it can, but more often than not, what happens is the house is taken before these options could be completed. As a result of this, the first step that needs to be taken it stalling before you lose all time. This can be done with various form and letter requests, but you need to make certain that you will have enough time to carry out your plan effectively.

You need to find options that don’t require cash up front

Once you decide that your are going to do what it takes to keep your house, you are going to cost the bank money, because they have to deal with you, which they hate. The way they want to profit off of you while you are dealing with them is to offer you solutions that require cash up front. They say, well, just get caught up and we will reduce the rate. Well, caught up, could be thousands that you don’t have. So, if you know how to not pay up front, or spread these costs due now over the life of your loan, then you will be making very small payments to stay in your home and stop the foreclosure process.

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You are facing foreclosure on your home.  You believe that you can resolve your financial problem and save your home by requesting that your mortgage be modified.  You have heard about the Making Home Affordable Modification Program and you wonder if it would be best for you to request the modification under that program.  How will your new interest rate and monthly payment be determined under that program?

The key in determining the interest rate and the monthly payment in the Making Home Affordable Modification Program is simple.  The maximum your monthly housing payment can be is 31% of your current income. 

Your monthly housing payment is made up of what you pay in principal and interest and for taxes, insurance and association fees.  The total of these can be no more than 31% of your gross monthly income. 

Your gross monthly income is what you make before any deductions for taxes, Social Security, Medicare, insurance and any other items.  Any other debts you have, your car, credit card and student loan payments, do not come into this calculation.

Your mortgage company will bring the rate down on your mortgage until your mortgage payment reaches 31% of your income.  They will not go below 31%.  They will get their by reducing the interest rate in increments of 0.125% until they get there.  This new lower rate and monthly payments will be in effect for five years. 

In the permanent modification agreement your mortgage company draws up, the maximum interest rate for your mortgage is specified.  Your mortgage company does not determine this.  It is the prevailing market interest rate on the date that your modification is finalized as published by Freddie Mac.  At the end of 60 months your interest rate and payment will start to rise to the maximum. 

The interest rate can only rise 1% a year.  Once it reaches the maximum rate, it and your payments remain the same from then until the end of your mortgage.

In some instances the interest rate on an existing mortgage may be very high.  To bring the mortgage payment down to 31% of the gross income, the interest rate may actually end up being higher than the prevailing market rate on the date that your modification is finalized.  If you are in this situation, your interest rate will be this higher rate.  This rate will remain in effect until the end of your mortgage.

The lowest an Interest rate under the Making Home Affordable Modification program can be is 2%.  If even at a 2% rate your mortgage payment is still higher than 31% of your income, your mortgage company has two options.

The first option is to extend the term on your mortgage from 30 to 40 years.  Doing this may bring your monthly payment down to 31%.  If that does not work, they can go to the second option.

The second option the Mortgage Company has is to forbear principal.  They would reduce the amount of the principal balance on your mortgage to the level necessary to reach the 31% level.  The amount of this principal reduction would come due at the end of the mortgage.  The mortgage company cannot charge any interest on this amount.

If the mortgage lasted 30 years, you would have to pay the amount of the principal reduction at that point. If the home was sold or the mortgage was refinanced, that amount would be added to the remaining balance on the mortgage then.  You would have to pay off the total.

A mortgage company is not required to forgive totally any portion of the principal to achieve the 31% monthly mortgage payment.  However, if they desire, a mortgage company can do this.  If they forgive a portion of the principal to achieve the 31% ratio initially, the mortgage company cannot add it back to the mortgage balance at any point later on.

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It is said that desperate times calls for desperate measures, but not every action that we take will cure our desperation. This is especially true when it comes to bankruptcy. When people are financially distressed, what comes into their minds is to file for insolvency. No wonder there are over one million people filing a petition to declare their insolvency each year.

Bankruptcy is not the way out for every individual. What may work out for me may not work out for you, regardless of the similarity of the circumstances leading to the financial distress. This is so because there are some things that declaring bankruptcy cannot do for you. For example, just because you are no longer able to meet your financial obligation does not mean that you mortgage providers will let you go free. You will still have to keep up with the payments.

Sometimes, you will find yourself having obtained some form of credit facilities wrongly. If you obtain a loan by fraud then get to a point where you cannot cater for the repayment installments, the court cannot relieve you of the debt. This is if the court will get to know that the loan was obtained through fraud. Other loans that insolvency will not have dissolved are those that you obtain long after you have filed the insolvency case.

When you file for insolvency, put into consideration what will happen to your co-signers. This is because they too will not be discharged and may be forced to pay up on your behalf. Think of the consequences and determine whether you are able to live with them.

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When other forms of debt settlement plans fails, one is left with bankruptcy filing as the only option. This is a legal process that gives you the option of declaring your financial position through a court case. In filing the petition, there are a number of chapters under which you can file your case depending on your ability to repay the debts.

Looking closely enough though, you will realize that there is another alternative to insolvency and this is personal bankruptcy. It refers to a process where you give up some of personal property in order to have some of your debts written off or forgiven. In many states it is known as the chapter 7 insolvency.

Unlike in filing for complete insolvency, personal insolvency assures you that at least a reasonable proportion of your debts will be forgiven. The process is easy and less demanding and you can even do it alone without involving an attorney. You only list those assets that are worth listing, which is to say that when sold off, they should be enough to take care of most of the debts. Personal items like clothes and other basics need not be listed.

One recommendable thing about personal insolvency is that you get discharged form the list of bankrupts within a period of twelve months unlike in the other version of insolvency in which your name remains in the records for a period of up to 10 years. Compared to other forms of debt settlement like Individual Voluntary Arrangement, personal insolvency is much cheaper and much effective. It also gives you a complete relief from the constant harassment from creditors.

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