6 South Street, Suite 201
Morristown, New Jersey 07960
(973) 605.8800 tel
(973) 605.8020 fax
craig@gilgallon.net




Craig Gilgallon NJ Real Estate Lawyer
Let’s broadly define a foreclosure workout as any arrangement negotiated with a creditor outside of the original terms of the loan. This method allows all parties to make the most of a bad situation and therefore it’s favored over the other options when possible. A foreclosure workout on property may take one of the following forms:

1. Short pay or Short Refinance. In most situations people accomplish this through a refinance of the property facing foreclosure. Example: The debtor owes $100,000 on their mortgage with another $15,000 in arrearage and legal fees. Someone negotiates for the loan to be settled for $80,000 and arranges a new loan for $85,000 to cover paying off the original bank and all associated transaction fees. The debtor has now avoided the foreclosure and eliminated $30,000 of debt. Sometimes a friend, relative or investor buys or pays off the mortgage from the creditor. Another way to make this work may be to negotiate as outlined here but instead of finding a foreclosure loan to cover both the settlement and the legal fees find the best loan you can and have friends or family make up the difference at a discount.

2. Modify the existing mortgage. In simple terms, the creditor, usually a bank, agrees to change the terms of the loan. Most often the changes are temporary. Reducing the interest rate, principal portions of payments, or extending the amortization in an effort to reduce overall payment obligations, remain the changes most acceptable to creditors. Unless the delinquency remains small with a loan at a local bank or the debtor has a nasty hardship under a government program this can be a tough plan to get through the creditor’s guidelines. Often a professional foreclosure negotiator can get these plans approved even when the debtor cannot.

3. Repayment plan. Easy to understand, easy for creditor acceptance. The debtor pays a portion of the arrearage and agrees to pay the rest in addition to the regular payment over a period of months. With proof of the income and the proper down payment, most lenders will accept this type of plan all day. Expect half of the arrearage plus its legal fees get paid up front with a promise to pay the rest of the arrearage in addition to the regular payment within six months. Plans with less down and paid over a longer period of time can be negotiated by loss mitigation professionals.

4. Deed in lieu of foreclosure. Here the debtor gives the property back to the creditor usually in exchange for their forgiveness of potential deficiencies. Do not think this happens with some negotiation by you or a foreclosure professional. Even if you give the house back or the bank takes it at a foreclosure auction you may will owe the deficiency. This amount will be the difference between what the house sold for at the foreclosure sale and what you owe including the legal fees. While the deficiency can be settled without paying any of it, this must be agreed to and certainly does not happen automatically in most states.

5. Short Sale. The property sells to a third party; the creditor accepts this price as full settlement of the debt if it is negotiated that way. Beware of the bank attempting to take a short sale and ask for a deficiency too. In cases where the owners being foreclosed on have many other assets there may be no way out of the foreclosure deficiency.

6. Friendly Foreclosure. The creditor or a friendly third party that has bought the mortgage sells the property at foreclosure to clean the title of other lien holders. Later the property sells back to the debtor or another predetermined entity.

7. Repurchase after foreclosure. Just as it says, buy back a foreclosed property after the auction.

8. Forbearance. In exchange for money or the debtor taking some other action (perhaps listing the property with a realtor or making repairs) the creditor agrees to temporarily cease legal actions.

 

For More Information, Contact us at:

The Law Firm of Pawar Gilgallon & Rudy, LLC
6 South Street, Suite 201
Morristown, New Jersey 07960
(973) 605.8800 tel
(973) 605.8020 fax
craig@gilgallon.net