When is foreclosure the best option?
This is a question we seem to hear often from our clients prior to a consultation with one of our advisors. Recently, we spoke to a client about his home that had a Lis Pendens filed about 10 months ago. The client did not want to do anything but rather wait for the foreclosure to come and the home to be taken by the bank. Many homeowners accept defeat early in the process due to the assumption that there is no option available to them. They contact New York’s Homeowner Protection Program (HOPP) just to hear that they should reach out to an attorney or someone else to help them with a foreclosure defense.
Foreclosure defense is one side of the foreclosure process. The attorney takes on the legal battle against the lender to prolong the foreclosure. One of our clients had went to an attorney as advised by HOPP and ended up spending thousands of dollars for the attorney to fight the bank but at the end, he told her that foreclosure was her only option. We would consider this a major disservice to the client especially since there are multiple options available to the homeowner/borrower to rid of the foreclosure.
A foreclosure allows the bank to file a deficiency judgment against the homeowner, which stays on your name for 10 years in New York and 20 years in New Jersey. A deficiency judgment is filed when the lender received less than the full amount of the lien in a Sheriff/Referee sale.
If the client is qualified, then we would always recommend a loan modification. If there are no other options available, we would advise the client to perform a short sale on the house as this would be the lowest risk for their credit. The short sale also guarantees that a deficiency judgment would not be filed against you. Many websites talk about moving on after a foreclosure.
How can one move on when the foreclosure takes a huge hit on their credit disabling them from getting a rental (which usually requires a credit check), or buying a new home (which definitely requires a credit check)?
Starting fresh is only possible with a short sale. A short sale helps to raise up your credit since it immediately shows on the credit report as “paid as agreed.” Losing hope is the last thing a person should do once they fall into turmoil. As your team, we work to empower you and to advise you that this is not the end, but rather the beginning. We always ensure our clients to receive relocation assistance so they can get a jump start in getting their life going and pave the way for their new future.
Definitions of Terms Used:
Lis Pendens: a Lis Pendens is an official notice that a lawsuit involving a property has been filed. The lender sends a 30-day notice and a 90-day notice when the first 3 payment have been missed. The Lis Pendens is filed in the Supreme Court once it is at the 120-day mark of non-payment.
Deficiency Judgment: A deficiency judgment is a ruling made by a court against a debtor on a secured loan (ex. Mortgage secured by a property). The deficiency judgment is filed when the sale of the property by the lender does not recover the debt in full.
