Colorado ranks ninth in the nation in foreclosure rates, representing many thousands of homeowners who need help to stop foreclosure. While the economy in America is still struggling, there are a growing number of options for those homeowners who are willing to work hard and seek help. For those who are facing foreclosure, Colorado is a title theory state, in which the title to a mortgaged property is held by the lender until the note is paid in full. Most mortgages also contain a power of sale clause, allowing the lender to put the property up for sale at auction in a non-judicial foreclosure, if the borrower defaults. A foreclosure generally takes sixty to seventy days in Colorado. Afterward, the lender is also permitted to sue for the deficiency, or difference, between the sale amount and the amount owed. However, for those wishing to stop foreclosure, there are other options.
Lender Assistance with Preventing Foreclosure
With the number of foreclosures taking place today, many lenders are willing to work with troubled homeowners who are willing to work hard to get back on their feet financially. As a result, a debtor may propose one of several plans, especially if they contact their lender’s loss mitigation department before they have missed payments.
- Forbearance is an agreement whereby the lender allows the borrower to miss a few payments or make a few partial payments for a specified period of time. The borrower then agrees to pay that money back, usually at the end of the mortgage period.
- Reinstatement occurs when a defaulted borrower agrees to pay back all of their missed or late payments and bring their loan current by a certain date. This is usually the result of the borrower receiving additional income in the form of a tax return or inheritance.
- Loan modification may occur when the lender believes the borrower can make regular payments if they are able to make smaller payments or pay less interest and they change the terms of the loan.
Assistance through Federal Programs
In addition to other solutions, the federal government has provided some programs to help struggling homeowners. Many will allow borrowers to keep their homes, as long as they can meet the specific requirements. A good source of advice in utilizing these programs, along with a dedicated attorney, is a counselor from the U.S. Department of Housing and Urban Development (HUD).
- The Homeowner Affordability and Stability Plan provides federal money to lenders who will refinance mortgages for struggling homeowners, providing lower interest rates and more appropriate repayment plans.
- The HOPE for Homeowners Act also allows borrowers to refinance their loans, although it provides incentives for their previous lenders to forgive early payment fees and late charges, and in some cases, even forgive part of the original loan. This plan generally applies to those with variable rate mortgages who wish to refinanced into fixed-rate, 30-year loans backed by the formidable FHA.
- The Mortgage Forgiveness Debt Relief Act of 2007 protects any forgiven debt from being classified by the IRS as “income” and taxed.
Selling a Home to Avoid Foreclosure
If negotiating with a lender and seeking government assistance programs fail, a homeowner may be forced to lose their home. However, they may be able to sell the home before it is sold at a foreclosure auction. If the homeowner is unable to sell the home at the asking price, there are other options that may reduce the damage to the homeowner’s credit score and, in some cases, provide some income as well.
- Short Sale – in which a lender accepts the proceeds of a home sale, even if they are less than the mortgage amount owed. This plan must be put in writing to protect the homeowner from any deficiency judgments for the difference. The primary drawback can be that a buyer may not be willing for this plan to be approved by the lender.
- Deed in Lieu of Foreclosure – in which the lender is willing to accept the deed to the borrower’s home to satisfy the mortgage. The debtor does lose their home, but often a lawyer will be able to negotiate with the lender to not report the default by the homeowner
Bankruptcy Options
Bankruptcy is rarely the first choice for a homeowner, especially since the rules have made it more difficult to qualify. However, the process begins with a stay, or hold, on all collection or foreclosure processes, allowing the homeowner time to search for appropriate solutions. Lenders may seek to have that stay lifted on certain accounts, but even if it is granted, there is generally some time for the borrower to catch their financial breath. There are generally two bankruptcy options available:
- Chapter 13 provides the best option for many debtors because it usually allows them to keep their home. Their finances are reorganized under this option and they formulate a plan to repay all their debts, often at lower rates and shorter terms.
- Chapter 7 can be challenging for many homeowners, because the bankruptcy trustee can liquidate some of the filer’s personal property. Colorado, however, allows a homestead exemption of between $60,000 and $90,000, which can protect the homes of many filers. In addition, many of the filer’s debts can be discharged, or erased, allowing them to channel more of their income into mortgage payments.
Getting Legal Help Stopping Foreclosure in Colorado
No one has to go through financial struggles alone anymore. There are many opportunities to find help through government programs and HUD counselors. In addition, there are many committed attorneys to assist homeowners in the difficult decisions that will make or break their financial future. In Colorado, there are also state exemptions to help with perhaps the toughest decision of all, bankruptcy.
