Default and Foreclosure Counseling

Options to Help Avoid Foreclosure

In Illinois the primary method of mortgage foreclosure is judicial. Because of this, it could take seven (7 months) or more from the time a property owner receives a notice of default until the property is sold at a public foreclosure auction sale. Accordingly, don’t wait until the property becomes REO (real estate owned) after the auction because the property generally must sell for more than it would in pre-foreclosure.

A deficiency judgment is available to a lender if a property in foreclosure is sold at a public foreclosure auction sale for less than the loan amount that the underlying mortgage secures. (Some MI companies will not require a deficiency judgment on losses of less than $7500) However, deficiency judgments are not permitted in cases of consent foreclosure or a deed in lieu of foreclosure.

Government insured properties require that the servicer negotiate possible options as long as the borrower is now employed and can make the payments. Freddie Mac and Fannie Mae state that they have the same policies.

Forbearance – temporarily suspends or reduces the payments for a period of time

Repayment Plan – a written agreement between the lender and borrower to bring the loan current over time.

Loan modification – a restructure of payment terms

FHA or USDA RD: can write the arrearage into the loan balance, interest rate to market rate, or extend loan repayment term. (loan must be at least 12 months old.)

Partial Claim: FHA and USDA RD – lender advances funds on behalf of the borrower in the amount necessary to reinstate the delinquent loan: a promissory note and subordinate interest free mortgage by HUD (Cannot include late fees, legal fees or other admin expenses)

VA- Refunding – the VA will take over the loan and make the special payment arrangements to bring the loan current.

Pre-Foreclosure Sale of property or Short Sale – Lender may be able to accept less than owed.

FHA Assumption- a qualified buyer may be allowed to assume the mortgage even though it states it is non-assumable

Deed in Lieu – Lender may agree to take back the property and forgive the debt. Owner generally must make a good faith effort to sell the property for fair market value for at least 90 days. This option may not be available if there are other liens or judgments against the property