Arkansas is ranked twenty-first in the nation in foreclosure rates, but there are means by which citizens of this state can stop foreclosure and save their homes. It can be a difficult road, but depending on a homeowner’s mortgage agreement, they have time to seek options even after their borrower has instituted foreclosure proceedings. The common agreement used in the state is a deed of trust, which is held in trust by the lender until the mortgage is paid in full. Most mortgages include a power of sale clause, allowing the lender to proceed to non-judicial foreclosure upon default and proper notification. Debtors will generally have 120 days before a foreclosure is completed, allowing them time to seek one of the many other options.
Lender Negotiations
The first steps for most debtors should include communicating with their lender about their financial struggles. It shows good faith and an effort to solve the problem to discuss impending difficulties before any payments are missed. In addition, there are counselors with the U.S. Department of Housing and Urban Development (HUD) who can provide free or low-cost advice for homeowners, and skilled, dedicated legal help is crucial to making wise choices and carrying them out effectively.
- Forbearance – Requesting time to miss payments or pay reduced payments for a specified period, establishing a time for the lender to repay those amounts at a later date.
- Reinstatement – Agreeing to make up any missed or reduced payments by a specified time in order to get the mortgage back on its original track.
- Modification – Requesting that the lender agree to adjust the loan terms in a way that allows the borrower to continue making regular payments. This may mean extending the loan and allowing smaller monthly payments, converting an adjustable rate loan to a fixed rate loan, or reducing the interest rate to allow for smaller payments throughout the life of the loan.
Assistance through Federal Government Programs
In these difficult times, the government has instituted several programs to help struggling homeowners. There are specific requirements for each program, so it is important to seek wise counsel to determine which is appropriate.
- Homeowner Affordability and Stability Plan – allows some homeowners to refinance their homes at lower rates and payments
- HOPE for Homeowners Act – allows some homeowners to adjust mortgages from variable rate to fixed rate, 30-year loans with FHA backing.
- Mortgage Forgiveness Debt Relief Act of 2007 – prohibits the IRS from taxing forgiven debt amounts as “income” for qualified mortgages.
Home Sales to Avoid Foreclosure
Homeowners do have the option to sell their home before their lender forecloses; however, in a slow or struggling market, that may not be easy. If the borrower can sell their home for more than they owe, they may realize sufficient funds to secure new, comfortable housing. In many cases, that is not possible. In those situations, they may have no choice but to lose their home in one of two ways:
- If the owner cannot find a buyer to pay more than is owed, they may have to settle for a short sale. If a buyer will pay a reasonable price for the home, and the lender agrees, in writing, to accept that amount to clear the debt, a short sale occurs. Since in some cases, a lender in Arkansas may sue for deficiency, a written agreement for a short sale protects the borrower from such legal action. However, these agreements often take a significant amount of time to conclude, and not all buyers are willing to wait.
- In extremely poor markets, the homeowner may choose to ask their lender to accept the house deed in lieu of foreclosure. The debtor loses their home, but they are spared the complication and expense of selling their home, and in many cases, their credit score is protected.
A foreclosure in Arkansas generally takes 120 days or more, so there is ample time to attempt to sell the home before the deadline and avoid a total loss.
Benefits of Bankruptcy
For most people, the final option is bankruptcy. Most do not want the damage to their credit score that a bankruptcy brings, but it does often protect a home from liquidation in chapter 7 and from loss if a chapter 13 arrangement can be reached. A debtor’s credit rating can begin to be restored quickly with a chapter 7 ruling, often more quickly than an ongoing struggle with overwhelming bills would provide.
- Both chapter 7 and chapter 13 begin with the court ordering an automatic stay, or hold on foreclosure proceedings or debt collection efforts. A lender may request that that stay be lifted, but even if the court eventually grants that stay, there can be time to reorganize and find some financial stability.
- Chapter 7 requires that a debtor liquidate some of their personal property, with the promise of discharging, or erasing, much of their consumer debt. If their mortgage is secured by their home, the lender may still be able to foreclose, but with much of their either debt erased, they may be able to get back on track with their mortgage.
- Chapter 13 allows the debtor to reorganize their finances and propose a debt repayment plan that is appropriate for their financial status. This requires enough disposable income to meet such a plan, but if the debtor is consistent throughout the life of the plan, they may be able to keep their home, restore their credit score, and pay off other debts.
Getting Legal Help Stopping Foreclosure in Arkansas
Arkansas has several laws to assist homeowners who are willing to work hard and make adjustments in order to pay off their debt and keep their home. However, these plans vary widely and each has its own qualifications. It can be vital to call upon an experienced HUD counselor, as well as a skilled foreclosure attorney, to help instruct and guide them through these complex options and help them avoid con artists and scammers who only promise to stop foreclosure but in reality, take even more of their limited resources.
