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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