QUESTION: I live in Washington State and have an ARM mortgage that has recently adjusted to an affordable amount. My interest rate increased from 6.5% to 7.5% and is due to increase again in another six months. Two months ago I missed my first payment and am very afraid my lender may soon file foreclosure proceedings.
How do I stop foreclosure in Washington State?
ANSWER: The effort to try and prevent foreclosure can be extremely stressful, and many homeowners like yourself just get confused with all the information available on the internet. One of the most important things you should research and need to understand is the fact that each state has its own set of foreclosure laws and guidelines they must abide by. Therefore, the timelines and requirements mortgage servicers must follow to complete the foreclosure process will typically vary from state to state. To research the general foreclosure laws set forth in your state please visit www.foreclosurelaw.org or Realtytrac for more information.
Below we will list some of the most popular and effective ways homeowner use to stop foreclosure. However, you must keep in mind that not all of these options you will be eligible for, and for some foreclosure may be inevitable. It is always the mortgage lender who will have the power to prevent the foreclosure from taking place.
Loan Modification: Over the last three years loan modifications have been the number one and most effective way for a homeowner to stop foreclosure proceedings. These are also commonly referred to as mortgage modifications, home loan modifications, loan workouts, or loan restructuring. This type of assistance may allow you to bring your account up to date, while at the same time possibly even lowering your monthly dues.
This seems to be the perfect solution for you since you can afford your home, but just not the current terms you have been given. Even if you fell behind due to temporary difficulties, this type of assistance may help resolve that issue.
To qualify for a modification you must be able to prove your financial hardships that are causing your mortgage payments to become unmanageable. When first submitting the application to your lender, you will be required to write out a detailed hardship letter explaining the events that have caused you to fall behind. Try to keep this letter no more than one to two pages at max because these banks are very overwhelmed with requests and it is unlikely they will take the time to read a full five page letter. You can find examples of a hardship letter here.
If you are able to obtain a loan modification your lender may lower your current interest rate, turn that ARM into a fixed rate mortgage, bring your account up to date, or possibly even extend the term of the loan to keep the monthly payments extra low. Therefore, if you can afford your home and just need some help with your financial struggles, this option is a wise first choice when trying to stop a foreclosure.
Most homeowner who are struggling to pay their mortgage are unaware that there are non-profit organizations that can help you negotiate with your lender. These companies often times show great results at no cost to you. Two non-profit organizations we have found to be extremely reputable are Neighborhood Assistance Corporation of America (NACA) and HOPE NOW. Both of these companies have a great working relationship with most lenders.
Home Affordable Modification Program (HAMP): Before applying for a modification we would like you to be aware that your servicer (depending on which one) will first review your account for the government's Home Affordable Modification Program (HAMP). To avoid a major delay in progress please review the eligibility requirements below to see if you qualify.
Eligibility requirements for HAMP:
"Loans originated on or before January 1, 2009.
First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.
All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
Modifications can start from now until December 31, 2012; loans can be modified only once under the program."
If you do not meet these requirement it is crucial you let your servicer know right away when first applying. All servicers will have their own in-house modification programs they can review your account for, which will not force you to meet these requirements.
Short Sale: This has got to be the next best option when trying to stop a foreclosure. Because homes have depreciated so much in value, short sales have become a very helpful option for homeowners to prevent the devastating affects of foreclosure.
A short sale occurs when your lender allows you to sell your property for less than the amount owed on the mortgage. Lenders many times have no other choice but to sell the property at a loss, or take an even bigger one if the property is auctioned off at foreclosure. This will also greatly benefit both parties as it will help avoid the extremely long, stressful, and expensive foreclosure process.
However, it is important to note that because your lender is allowing you to settle the debt for less than what you owe, there may be some consequences that come along with it. First off, your credit rating will more than likely be affected because of the sale, especially if you had multiple missed payments before the sale.
If your account happens to fall six months or more behind, you may find your credit rating drop as low as it would if you had a foreclosure on record. Vice-versa, your credit rating should only go down a very small amount if you managed your payments up until the time of closing. In our forum here on LoanSafe.org we have seen quite a few people who achieved a short sale while current and their credit rating only went down about 25-50 points.
You will also find that you will more than likely receive a 1099 for the deficiency balance if the sale is approved. The deficiency balance is the difference between the amount your home sold for and the amount still owed on the mortgage. Any mortgage professional would advise to first go out and consult with a local real estate agent or attorney who is experienced with short sales before pursuing this option. Most legitimate real state attorneys will offer the first consultation free of charge.
Deed in Lieu: Another option to try and help avoid a foreclosure would be through a deed in lieu. During a deed in lieu you will agree to transfer the title of your property to your lender, and in exchange you will no longer be obligated to the mortgage.
This can be very beneficial if you are able to achieve one because you can help lessen the amount your credit rating will be damaged through a foreclosure. While at the same time this benefits your lender because they will not have to go through the extremely long and expensive foreclosure process.
Although there is a chance your credit will be affected up to 250 points though this event. There is a chance you may also be on the hook for tax consequences as well depending on the recourse of your mortgage. For these reasons it may be smarter to first exhaust the options listed above before pursuing a deed in lieu on your home. Again, please make sure to first consult with a local real estate agent or attorney to get a clear picture about how this will play out, and the specific laws in your state.
However, for some homeowners foreclosure will be inevitable. Most people who do not qualify for assistance due to lack of income just save the little money they have until their home is auctioned off at foreclosure and they are forced to find a place to rent. These homeowner must exhaust all options listed above before giving up the fight.
We strongly encourage any homeowner that is struggling with their mortgage and may be facing foreclosure to please come and join our free forum here on LoanSafe.org. Here you will find a community of over 32,000 members and all the information you could possibly need to help gear up for battle.
Washington State Homeownership Information Program
Free foreclosure counseling, classes, workshops, and resources available to Washington State residents.
Speak To A HUD Approved Counselor: 1-877-894-HOME
If you would like to speak with someone about your current situation, please contact the Washington State Homeownership Information Hotline at 1.877.894.HOME (894.4663).
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