Tips To Stop Foreclosure on Your Property
Arkansas is a judicial foreclosure state. There are two types of judicial foreclosures available:
- Strict foreclosure
- Decree of sale
The bank can foreclose your house in 60-75 days of filing a strict foreclosure. A strict foreclosure does not require a complete sale of your home. In fact, the lender can claim the property title in the court, and the process is over.
The order of sale gives you more options to prevent foreclosure. The timeline extends itself to several months, and you get the option to reinstate your loan.
A strict foreclosure does not allow reinstatement. The court will issue a schedule to help you redeem the mortgage. Your failure to respond will speed up the foreclosure, and the title will be transferred to your bank.
1. Loan Reinstatement
Loan Reinstatement allows you to pay the due amount on your mortgage. You can pay the missed loan installments along with the late payment fine and interest rates. The best time to reinstate your loan is before you have missed the 3rd mortgage payment. Reinstatement makes your loan current. Thus, lenders must stop any foreclosure action against you.
In Arkansas, you do not get the option to reinstate your loan before the auction. You can avail this option only if it is present in your mortgage documents.
The cause of a foreclosure is often severe health issues, job loss, divorce, and relocation. A forbearance plan helps you get some time to manage your financial situation. The lender will suspend your monthly payments during the forbearance period.
You must start sending payments after the forbearance period expires. The pending amount can be applied toward your monthly payments, or you may have to pay it as a lump sum.
3. Negotiate a Short Sale
Arkansas is a judicial state that means the lender can ask you to pay the deficiency balance. A deficiency balance is a difference between the sales price of your house and the value of the mortgage. Let’s say, you took the loan for $375k, but the property value has declined by $50k.
The foreclosure may be over now, but you will be responsible for paying the remaining $50k.
The lender can file the deficiency judgment against you within three years of filing foreclosure. To prevent this, you must negotiate a short sale with the bank. A short sale is a good option if the selling price does not exceed mortgage value. All lenders will not accept a short sale. Nonetheless, if you are successful, you can free yourself from the deficiency judgment.
A short sale also has a less severe impact on your credit score. The credit score effect of short sale diminishes in 2-5 years whereas a foreclosure stays on your credit report for seven years.
4. Bankruptcy Can Prevent Foreclosure
(Chapter 7 liquidates your asset while you can create a repayment plan with chapter 13.)
It is true that bankruptcy can prevent the bank from seizing your house. But, it is not an end. You must apply for chapter 13 if you are earning more than the state median. During the chapter 13, you will propose a mortgage repayment plan often consisting of 3-5 years. The bank will limit your expenditures. You will lose your credit cards, and your disposable income will be used to pay off your debts in next five years.
Chapter 7 is the liquidation bankruptcy. You qualify only if your income is less than the state median. The court will ultimately sell your house if you file for chapter 7. We recommend chapter 7 only if you have other unsecured debts. Otherwise, you will lose your home and bankruptcy will have a more severe impact on your credit score than a foreclosure.
Here is the catch: According to the 2005 Act of Bankruptcy, you cannot submit your application unless you attend credit counseling six months before filing bankruptcy. So while the bankruptcy can immediately stop the foreclosure, it has its requirements that must be met before the law can take action.
5. Foreclosure Assistance Programs
Govt. help is available in this state. The best program is the Emergency Mortgage Assistance Program (EMAP) offered by the Arkansas Housing Finance Authority (CHFA). People facing foreclosure are eligible for this program. To apply:
- Check that your loan was issued by the FHA.
- You must have tried negotiating with the lender.
- You must have been unsuccessful at curing the default.
- Make sure to consult a HUD-approved counselor.
Emergency Mortgage Assistance Program will issue a new loan to you. The terms of this loan resemble the guidelines of a 30-year fixed price mortgage. The CHFA does not require repayment of this loan unless your income allows it. You will pay this loan in installments over the next 30 years with a fixed interest rate.
6. Deed in Lieu of Foreclosure
A deed instead of foreclosure transfers the property title to the lender with your consent. A deed instead of foreclosure is applicable only if you have tried other options such as modification, delay tactics, forbearance, and reinstatement. When these options have failed, it is best to give your house back to the bank rather than fighting your way till the end.
Your lender may pay you a fee less than $2,000 for accepting a deed in place of foreclosure.
7. Mortgage Modification
HAMP (Home Affordable Modification Program) allows you to submit a mortgage modification request. If successful, the lender will reduce the interest rates or extend the mortgage duration to reduce your monthly payments. You must show evidence of financial hardship and reason as for why you cannot pay back the mortgage. The bank cannot foreclose your home unless you have received a response for your application. In case of denial, you have the right to appeal. However, if your application is rejected twice, the bank can sell the property in next 15-30 days.
8. Sell Your House to a Cash Buyer
It is an exit strategy. This action preserves your credit history. You can buy a new home as soon as your finances become stable.
The sale of your house immediately stops the foreclosure. The problem is to find a buyer who can close the deal within the foreclosure timeline. A reputable cash buyer can buy your house typically within 7-14 days or at a date of your choosing. They will offer you a cash price within 14 days, and purchase your house As-Is. If you want to find out how to sell your home quickly. Contact us now (501)369-0365 to discuss a foreclosure prevention strategy.