Nevada Foreclosure Procedure
How to Avoid Foreclosure? (Part One)
By Malik W. Ahmad,
Attorney & Counselor at Law
NOTE: This article is three part series on foreclosure and related issues, and only meant for education purposes. There is no legal advice given, or any kind of attorney client relations are created. Readers, if they still have question, should contact a licensed attorneys. However, smaller question of general education nature can be answered by Attorney Malik Ahmad via his Loan Modification blog. Thanks.
First how to Avoid Foreclosure?
Can Workout be Helpful to You?
A debtor defaults on a loan, the creditor has two options. First, the creditor may elect to consider the loan due and exercise the legal remedies it is vested with. That includes, of course, a right to foreclose. Secondly, there is much talked about loan modification. While workout is an informal plan, a loan modification depends on various factors like the hardship of the borrower, the changed circumstances of the factors contributing towards the loan. How this debt can be restructured, this is the most essential question in any loan modification. A workout can benefit both the creditors and the debtors. The underlying idea is that the debtor would avoid foreclosure and would catch up on his payments on a regular basis.
The pitfall of loan foreclosure is that the debtor would have trouble in qualifying another loan. There would be derogatory remarks inscribed on his credit report for quite some time. Furthermore, there is looming danger of a deficiency judgment which is the entitlement of the creditor for the unpaid portion of the loan. Again, the IRS is another sword of Damocles hanging on the debtor’s head. IRS considers loan forgiveness as income derived by debtor.
The lenders are more likely to work with debtors to facilitate loan modifications. There are innumerable number of guideline depending who you talk to. Lenders are becoming more agreeable because the onslaught of foreclosure homes is large and unbearable. The lenders do not like to become property managers. That is one benefit the depressed homeowners should think in making any plea for loan modification. Secondly, even if loans are modified, would the borrowers still be paying it regularly? A workout program also teaches the wild borrower who never learnt any rules of financial management, a sense of some discipline which he can apply on many facets of his life. A creditor must obtain written consent from all guarantors before a final agreement can be reached, otherwise, any affected guarantor will be relieved from obligation under the new agreement. See Southwest Sec. v. Amfac, Inc., 110 Nev. 1036, 1039, 879 P.2d 755, 757, citing Marion Properties, Ltd. V. Goff, 108 Nev. 946, 948, 840 P.2d 1230, 1231 (1992). 8. Workout Options: There are several options available to allow the debtor to remain in possession of its property and minimize the impact on their credit report. Those options include; reinstatement, forbearance, loan modification or future advance. Below, we would like to discuss few of them:
Reinstatement: It allows the borrower to bring a delinquent loan current within a time agreed upon by making set payments toward the delinquent amount in addition the scheduled monthly payments on the loan.
Forbearance Agreement: The debtor makes a promise to pay and get caught up on his delinquency by an agreed date. This includes a repayment plan. It all depends on borrower financial viability and future earning potential.
Loan Modification: This is the alteration of the terms of the loan. Here, more than few elements of the original loans are changed ranging from interest rate, to terms of the loan, including a reduction in principal depending on the new appraised value.
Refinancing: It allows the debtor to borrow additional funds from either the same lender or a new one. The new loan may be obtained to pay off the either the whole balances of the previous loan, or simply the balance of the loan.
Short Sale: It is sale which does not bring the full value of the property but still acceptable to your lender.
Deed in Lieu of Foreclosure: You can surrender the deed, if your lenders accept it. The problem is that the lender may not accept it if there are junior liens attached to it. Furthermore, it may cause complications, if you are contemplating any future bankruptcy. By accepting the deed, the lender releases the debtor from all personal liability on the loan.
Loan Assumption: Your loan can be assumed by an equally qualified borrower.
When the Foreclosure is the Only Choice?
1. You must determine who the debtor is? If a foreclosing agency does not recognize clearly the debtor, they are in great problem.
2. See if your creditor had determined the status of the loan, which includes all the surrounding factors around your loan.
3. Analyze realistically the reasons surrounding the foreclosure. Under what conditions, you would be paying the continuous payment.
4. Does the problem lies with the debtor?
5. Does the problem lies with the state of the economy?
6. The value of the property should be reasonably appraised. If the debt is greater than the market value, would it be worthwhile for the debtor to stay. He/she is not simply taking advantage of the whole situation. What was the last time he paid on his mortgage payment? Was there an irregular pattern before? Answers to debtors’ good credit history, sufficient equity in collateral, future income potential and other sound financial yardsticks can be important factors here.
7. Whether a bankruptcy is an Option? A bankruptcy petition is vested with an automatic stay of all judicial non-judicial foreclosures. A bankruptcy discharge will void any pre-petition stay of 11 U.S.C. Section 362 and will operate as an injunction against the commencement or continuation of any action concerning the debtor’s personal pre-petition liability on the loan. A bankruptcy can be filed anytime before a foreclosure sale.
Note: My next article which is Part Two, concentrates on Real Property Foreclosure Procedures in the State of Nevada. (Malik Ahmad)