While Arizona is another state in which lenders primarily seek non-judicial foreclosures, there are reasons and ways for struggling homeowners to stop foreclosure. For Arizona residents, the title of their home is held in trust whenever there is a mortgage on the property and is only released when that mortgage loan is paid in full. Most deeds also contain a power of sale clause giving the lender permission to sell the property if the borrower falls behind, sometimes even for one missed payment. Arizona residents can stop that process, however, if they qualify by several means.
Government Solutions
There are a number of plans that provide options for homeowners who are danger of losing their homes to foreclosure. There are specific requirements for each of these programs, however, so it is important for a homeowner to seek skilled and committed legal counsel to learn which programs may work for them.
- Qualified homeowners may be able to adjust their variable or high rate mortgages to fixed or low rate mortgages backed by the FHA under the HOPE for Homeowners Act.
- Those who meet the requirements for the Homeowner Affordability and Stability Plan may be able to refinance their homes at a lower rate or for longer periods of time.
- Many borrowers who are struggling to meet mortgage payments on their primary residence are now protected from having any debt forgiveness taxed as income by the IRS through the Mortgage Forgiveness Debt Relief Act of 2007.
Loss Mitigation Negotiations with Lenders
When a homeowner first realizes that it will be difficult to continue to make their mortgage payments, they should contact their lender, often through their loss mitigation department. Lenders are more willing to work with someone who attempts to act in good faith early to find a workable solution rather than someone who has already failed to make several payments. Some of the solutions a lender may accept include:
- Agreeing to allow the borrower to make up any missed payments by a specified period of time, reinstating the loan and canceling foreclosure proceedings.
- Modifying the terms of the loan to better fit the borrower’s ability to make regular payments, such as extending the loan and accepting lower monthly payments, converting an adjustable rate loan to a fixed rate mortgage, or adding missed payments to the end of the loan period.
- The lender agreeing to the borrower making no payments or reduced payments for an agreed upon period of time, and adding those missed payments to the end of the loan. This forbearance is usually granted to someone who is anticipating a large windfall or change in circumstances.
Pre-Foreclosure Sale
Not only does a foreclosure damage a borrower’s credit rating, it leaves them with little or no money to secure other housing and may leave them facing deficiency judgments for the difference between the amount owed and the amount the home is auctioned off for. To avoid this additional stress, a homeowner may attempt to sell their home themselves. If they cannot find a buyer to meet their desired price, they may still avoid some of the downside of losing their home in two ways:
- Short Sale – It can be better to ask the lender to agree in writing to a short sale, or settling the mortgage loan for less than the amount owed. Lenders are often slow to agree to this solution, since they must agree not to sue for a deficiency judgment, making it difficult to find a buyer who is willing to wait for the lender to agree and effect such a sale.
- In some cases, especially in a depressed real estate market, the homeowner may be willing to hand over their deed in lieu of foreclosure if their lender agrees. They lose their home and any income they might derive from it for future housing, but they are saved the complications and time involved in trying to sell their home or seeking lender approval for a short sale.
It is important to note that Arizona does allow deficiency judgments in some cases, except when it involves a primary, single- or two-family residence that is less than 2.5 acres. It is important for homeowners to consult an attorney to be sure of their rights in these situations.
Benefits of Bankruptcy
Bankruptcy can have a devastating impact on a person’s credit score, but it can be worth it when someone is clearly not going to be able to avoid foreclosure any other way. Bankruptcy always provides an automatic stay, or hold, on any collection or foreclosure proceedings. In some cases, a judge may lift that stay, but even then, the borrower has some time to organize their finances, consult a counselor and lawyer, and find the best financial solution. There are two types of bankruptcy:
- Chapter 13 may be the best choice to save a home from foreclosure, since the court and bankruptcy trustee will help the borrower reorganize their finances and develop a viable repayment plan. If that plan is followed for the life of a mortgage, the borrower may be able to save their home.
- Chapter 7 bankruptcy may prove a less successful choice for many people. Even though it allows the debtor to discharge, or erase, most of their consumer debt, any liens, such as those on a home, may be invoked by the lender to reclaim their funds. For some, however, erasing other consumer debt may allow them to direct all of the income toward paying their mortgage.
Getting Legal Help Stopping Foreclosure in Arizona
One of the vital first steps for anyone facing foreclosure in Arizona is to talk to a counselor and a lawyer to learn their status and possible solutions. There are free or low-cost counselors through the U.S. Department of Housing and Urban Development (HUD) who can provide vital information about federal and state laws. A foreclosure attorney can help guide the borrower through whichever process is determined to be the most advantageous. It is important to choose these options over con artists and so-called “stop foreclosure” companies that charge high rates for processes that may, in reality, incur little cost or be entirely free.
