Foreclosure is a legal process in which a lender takes possession of a property from a borrower who has defaulted on their mortgage payments. In Miami, Florida, foreclosure rates peaked during the housing crisis of the late 2000s but have since been declining. However, there are still many foreclosures in the process or being filed throughout the city DAILY.
Foreclosure has several negative impacts on a borrower, including:
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Damage to Credit Score: Foreclosures can lower an individual's credit score by as much as 300 points, which can make it challenging for them to secure future credit, loans, and even employment.
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Loss of Investment: Foreclosure generally entails the loss of a significant investment. If a borrower is unable to stay current on their mortgage payments or sell their property before foreclosure, they risk losing any equity they had in their home.
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Emotional Stress: Foreclosure can be an incredibly stressful and emotional process. Losing one's home can have a profound impact on a borrower's mental and emotional well-being.
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Stigma: People who have gone through foreclosure may face social and financial stigma, which could impact their personal and professional life.
Overall, foreclosure can have long-lasting effects on a borrower's financial and personal life. Although very emotional, ultimately foreclosure and these implications can be avoided.
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Every situation is different and requires specific attention and a detailed plan for resolution. You can find some strategies and resolutions that can be deployed below. Please consult with an expert prior to attempting to resolve the matter yourself. We'd be happy to help and provide a FREE consultation.
- Forebearance: The term forbearance refers to the temporary postponement of loan payments, typically for a mortgage or student loan. Lenders and other creditors grant forbearance as an alternative to forcing a property into foreclosure or leaving the borrower to default on the loan.
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Loan modification: This provides the homeowner with a new loan agreement that allows them to pay a smaller amount than they previously did.
- Negotiate with the lender: Homeowners can also try to negotiate with their lender to work out a payment plan that they can afford.
- Sell a valuable asset: Homeowners may have a valuable asset that they can sell to help pay the mortgage. Overall, there are various creative ways to temporarily or permanently resolve a foreclosure.
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Renting out rooms: Homeowners can rent out extra rooms in their home and use the income to help pay their mortgage.
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Selling the house: Homeowners may need to sell their home to get out of a difficult financial situation. This option can provide homeowners with a revived opportunity to hit the reset button and money in their pocket to help them back on their feet.
- Short sale: A short sale is where the homeowner sells their home for less than what they owe on the mortgage. This involves the lender agreeing to accept less than the full amount owed. There are many reasons homeowners opt for a short sale, but one of the most common is to avoid going into foreclosure
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Government Programs: Many government programs exist to temporarily stop foreclosure, like forbearance, repayment plans, and mortgage assistance programs. The Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP).
- Refinance: Refinancing involves getting a new mortgage with a lower interest rate, which could reduce the monthly mortgage payments.
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Consolidate debt: Some homeowners may be able to consolidate their debt to lower monthly payments.
- Bankruptcy: Filing for bankruptcy can help you delay or even stop foreclosure. However, it should only be considered as a last resort.
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A "loan modification" is a written agreement that permanently changes the promissory note's original terms to make the borrower's mortgage payments more affordable. A modification typically lowers the interest rate and extends the loan's term. You'll need to contact your loan servicer to get a modification. Typically, you'll have to supply details about your income, expenses, and situation. You'll also usually have to provide supporting documentation.
The U.S. Department of Treasury created HARP in early 2009 to help homeowners who are not behind on mortgage payments but who cannot get traditional refinancing because the value of their homes have decreased. According to FHFA, almost 894,000 borrowers refinanced through HARP as of August 31, 2011.
On October 24, 2011, FHFA, Fannie Mae, and Freddie Mac announced changes to the program to expand eligibility and encourage more lenders to participate in HARP. After these changes, a homeowner can be eligible for HARP if: the mortgage is owned or guaranteed by Freddie Mac or Fannie Mae, the mortgage was sold to Freddie Mac or Fannie Mae no later than May 31, 2009, the loan-to-value (LTV) ratio is greater than 80%, and the borrower is current on the mortgage at the time of refinancing with no late payments in the past six months and no more than one late payment in the past 12 months.
HAMP’s goal is to offer homeowners who are at risk of foreclosure reduced monthly mortgage payments that are affordable and sustainable over the long-term.
HAMP was designed to help families who are struggling to remain in their homes and show:
- Documented financial hardship.
- An ability to make their monthly mortgage payments after a modification.
HAMP is a voluntary program that supports servicers’ efforts to modify mortgages, while protecting taxpayers’ interests. To protect taxpayers, MHA housing initiatives have pay‐for‐success incentives.
A short sale can help avoid foreclosure by allowing the homeowner to sell the property for less than the amount owed on the mortgage. However, it does not completely resolve the foreclosure process as the lender still has the right to pursue the remaining debt after the sale and the homeowner may still be responsible for any deficiency. In some cases, the lender may also require the homeowner to sign a promissory note for the remaining balance.
Bankruptcy can temporarily stop a foreclosure, but it may not fully resolve it. If you file for bankruptcy before the foreclosure process is complete, it will halt the process temporarily. If you file for Chapter 7 bankruptcy, you may be able to discharge some or all of the debt associated with the foreclosure. In contrast, filing for Chapter 13 bankruptcy will allow you to reorganize your debts and make payments to your creditors over a period of time. However, if you are unable to make your payments, the foreclosure process may resume. Ultimately, bankruptcy may provide a temporary solution to a foreclosure, but it depends on your specific circumstances and which chapter of bankruptcy you file for.