Alabama homeowners may explore a number of options to stop foreclosure. Alabama is one of the states that allow both judicial and non-judicial foreclosure proceedings; making it possible for lenders to pursue a less costly process to reclaim the money, they are owed. Those procedures generally take between thirty and ninety days. As a title theory state, the title to a home is held in trust until the loan is paid in full. That title is secured by a deed of trust or mortgage, which outlines the terms and conditions, including those governing default and foreclosure, related to that loan. The first step for any homeowner is to understand the terms included in their deed of trust or mortgage. In addition, knowing Alabama state statutes and federal laws protecting homeowners is vital.
Government Programs
The government has instituted some plans to help, although there are some specific requirements before a homeowner can qualify. By consulting a HUD counselor and a foreclosure attorney, an Alabama homeowner can determine if any of these options will prove helpful:
- HOPE for Homeowners Act: A plan by which homeowners with only one residential property, who are unable to meet their current payments, and meet certain other requirements may be able to have their mortgage, including variable rate mortgages, refinanced at a lower, fixed rate
- Homeowner Affordability and Stability Plan: Those who qualify may also be able to have their mortgage refinanced at a lower, and often fixed, rate
- Mortgage Forgiveness Debt Relief Act of 2007: This act prevents the IRS from taxing forgiven debt as “income” if the agreement meets the act’s requirements
Your Lender May Be Your Ally
Lenders have become more willing than ever to negotiate with those who have a reasonable chance of getting back on track with their mortgage payments. Indeed, the sooner a debtor contacts their lender, the more likely they are to be willing to discuss alternatives to foreclosure and allow the lender to retain their home.
- Forbearance plans are generally allowed in Alabama, depending on the specific guidelines in the deed of trust or mortgage. It is a plan by which a lender allows a debtor to suspend payments or make partial payments for a specified period of time
- Loan reinstatement results when a debtor and lender agree to suspend foreclosure if the debtor can either catch up on missed loan payments or can present a feasible plan for doing so over a specified period of time
- Loan modification or refinancing are also options that may work within Alabama foreclosure laws. If the debtor has reasonable prospects for repaying the loan with smaller payments, it may be worth the lender’s while to approve such a plan
Short Sales
For many homeowners, selling their home would be the first option for solving their credit problems. However, in today’s troubled economy, it can be difficult to find buyers who will pay what the debtor owes. In those cases, a short sale may be the answer, if the lender is willing.
A short sale occurs when a homeowner sells their home for less than is owed. However, in Alabama, the lender can sue the borrower for the difference, called a deficiency. If the lender agrees in writing to accept whatever the house sells for, a short sale is the result. The elements of a short sale vary widely among actual transactions, depending on the appraised value of the home, the market value, and the amount the debtor owes, making it wise to include a foreclosure attorney throughout the process.
Deed in lieu of Foreclosure
Similar to a short sale, a deed in lieu of foreclosure allows the debtor to free him or herself of the responsibility of a mortgage, although they do lose their property in this option. If a debtor has been unable to sell their home for a significant period, generally three months or more, the bank may agree to accept the property and forgive what is owed. It is vital to enlist an attorney to help procure this agreement in writing.
The Bankruptcy Option
For some, the last resort may be bankruptcy. And while this process does do significant damage to a debtor’s credit rating, it can allow them to begin rebuilding their credit score more quickly than some other options. Both Chapter 7 and Chapter 13 bankruptcy put an automatic stay, or hold, on collection processes by a debtor’s creditors. Chapter 7 allows the debtor to wipe out most consumer debt, including a mortgage. However, the lien on their home can still be invoked causing the debtor to lose their home. In Chapter 13 bankruptcy, if there is sufficient solvency for the borrower to formulate a reasonable repayment plan, the lender may agree to a reorganization and reformatted repayment plan. If the plan is followed through to the end, the debtor may be able to stop foreclosure and save their home.
In some cases, however, a judge may lift the stay, or hold, on collection processes, including foreclosure. In those cases, bankruptcy may not be a viable option. An experienced foreclosure lawyer can help a borrower determine if this is the right choice for them.
Getting Legal Help Stopping Foreclosure in Alabama
While it is always important for a buyer to beware of sales scams and con artists, in today’s economy it is vital for struggling homeowners. There are numerous reputable counselors available, including those from the U.S. Department of Housing and Urban Development (HUD). In addition, a lawyer committed to their interests and a lender who is willing to discuss alternatives to foreclosure, usually through their loss mitigation department, are the primary guides a homeowner needs to determine if there are viable alternatives to stop foreclosure and save their home.
