Full question:
My son is in the military and is behind on his mortgage payments. He owes 162,000.00 on a property worth about 140,000.00. There is a first and second mortgage on the property. If this is foreclosed on will he be liable for what is not paid off with proceeds from the sale? This property is in Montana. He is also considering bankruptcy but this would be his last choice. He is also aware of the SMCRA but would rather no longer deal with the property. What do you suggest given the information I have just supplied?
- Category: Real Property
- Subcategory: Foreclosure
- Date:
- State: Montana
Answer:
Depending on the situation, a lender may consider one of the following:
Loan Workout: A loan workout modifies the original loan agreement. Some of these changes may include forbearance (e.g. forgiving a portion of the debt or late charges); deferment; renegotiating interest rate, monthly payment amount, principal amount, maturity date; or the enforcement an acceleration clause in the loan.
Deed in Lieu of Foreclosure: After the borrower is in default, the borrower voluntarily delivers title to the lender for consideration and the lender accepts the conveyance of the property in full satisfaction of the mortgage debt. You can raise your FICO score with deed in lieu by asking the lender to report your situation as PAID - SETTLED instead of foreclosure. Using this method, the lender saves the costs of foreclosure and the borrower avoids having a notice of default on his/her records.
A deed in lieu of foreclosure is a method sometimes used by a lienholder on property to avoid a lengthy and expensive foreclosure process, With a deed in lieu of foreclosure (DIL), a foreclosing lienholder agrees to have the ownership interest transferred to the bank/lienholder as payment in full. The debtor basically deeds the property to the bank instead of them paying for foreclosure procedings. Therefore, if a debtor fails to make mortgage payments and the bank is about to foreclose on the property, the deed in lieu of foreclosure is an option that chooses to give the bank ownership of the property rather than having the bank use the legal process of foreclosure.
A DIL can be used in limited circumstances. The debtor must have exhausted all efforts to sell the home professionally marketed at it's as-is, fair market value. The debtor also can't have another mortgage in default and must not have the ability to make the monthy payment or make up the difference between the sale price and what is owed.
When a lender agrees to accept a deed in lieu of foreclosure, there is no guarantee that it will forgive any outstanding balance owed under the promissory note. However, it is common for the borrower to ask for that debt forgiveness. If the lender agrees, it is wise to document it in writing.
Short Sale: A short sale is a transaction in which a lender allows the real property securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan. A lender may accept a short sale when the borrower is in severe financial straits and market conditions make a short sale the best choice to mitigate the lender's damages. Like a deed in lieu of foreclosure this saves the lender the costs of foreclosure and the borrower avoids having a foreclosure on his or her credit report.
Short Payoff: With a short payoff, the lender accepts less than the remaining mortgage amount as full payment of the loan. The property need not be sold.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
