We sometimes lose sight of the fact that not all foreclosures are related to the housing bust or the mortgage servicing scandal. There were foreclosures long before 2008, just as there will be foreclosures long after the market returns to normal and lenders have finally cleaned up their acts.
Oh, there may be highs and lows, but the sad fact is that there may never come a day when foreclosures are a thing of the past, when faded photographs of foreclosure signs and aging, yellowed notices of sheriffs’ sales sit in a museum display case alongside pictures of Great Depression bread lines and ramshackle housing for meatpacking workers.
The truth is that people still lose their jobs and have trouble finding new ones. There are still families that have to deal with a loved one’s catastrophic injury or illness. There are still older Americans who are not prepared financially for retirement. There are still homeowners who fall behind on their mortgage payments and cannot find a way out of the predicament.
These homeowners have options, though. A short sale is one example.
As we have explained elsewhere, a homeowner and lender can agree to sell the home for less than the value of the outstanding loans. Bob owes $100,000 on his mortgage. He and the bank agree to list the home for $80,000. Bob avoids foreclosure, and the bank does not face the hassle or expense of a foreclosure.
What Bob may not realize is that the bank could come after him for the $20,000 difference. Illinois law does not prohibit lenders from filing for deficiency judgments against individual borrowers.
Borrowers can protect themselves against deficiency judgments by taking advantage of the federal Home Affordable Foreclosure Alternatives Program. HAFA specifically requires lenders to release borrowersÂ completelyÂ from the mortgage — deficiency judgments are specifically barred.
HAFA offers many advantages, including, in some cases, as much as $10,000 in relocation assistance. However, the borrower and the loan must meet certain criteria to participate. There are borrowers and there are loans that will not qualify.
This is just one reason a borrower in financial distress should consult with an attorney. An attorney with foreclosure and debt relief experience can help a borrower understand the available options and help him determine which best fits his individual circumstances.
So, yes, there are alternatives to foreclosure, but there is no one-size-fits-all solution. It’s best to consult with an experienced attorney before taking action.
MakingHomeAffordable.gov, “Home Affordable Foreclosure Alternatives (HAFA) Program,” U.S. departments of Treasury and Housing & Urban Development, accessed Feb. 11, 2015
Nolo, “Deficiency judgments after foreclosure in Illinois,” accessed Feb. 11, 2015