While Connecticut is twenty-fifth in national foreclosure rates, there are still many thousands of citizens looking for ways to stop foreclosure and get out of financial trouble. There are some means to do so, although Connecticut also has strict foreclosure laws. That means that there is no non-judicial form of foreclosure and a lender must file a complaint and have a court ruling on a foreclosure. Then they may affect a strict foreclosure, where the property passes directly to the lender, or a foreclosure by sale, where the property is auctioned off to the highest bidder. This process generally takes sixty to seventy-five days, during which the homeowner may stop the process by paying the full amount of the mortgage. However, there are steps the homeowner can take prior to that time to stop the foreclosure.
Federal Assistance Available to Struggling Homeowners
One of the first avenues a homeowner should explore is the federal assistance programs to help those struggling to make their mortgage payments. There are specific prerequisites an applicant must meet, so it is wise to contact a counselor from the U.S. Department of Housing and Urban Development (HUD) to help determine which program is appropriate. A dedicated attorney can also help a debtor find the right plan for them.
- The government provides incentives to lenders through the Hope for Homeowners Act. Those incentives encourage creditors to forgive early payment fees and late charges, as wells as to forgive part of the loan principal while the debtor refinances their home and moves from adjustable rate to fixed rate loan, often at lower interest rates.
- The government is encouraging lenders to refinance mortgages at lower rates for those struggling to make payments by providing incentives through the Homeowner Affordability and Stability Plan.
- A bill was passed in 2007 to protect those who have benefited from debt forgiveness programs. Those monies were formerly taxed as income by the IRS, but the Mortgage Forgiveness Debt Relief Act of 2007 prohibits such action.
Creditor Assistance Available to Struggling Homeowners
It is important to communicate and work with a lender early in financial struggles to gain the benefits of their loss mitigation programs. The sooner a homeowner informs the lender that there may be problems, the more likely than lender is to work with them to reach a viable solution. The government is providing incentives for lenders to do so, as well.
- A lender may see the borrower as a good risk for such good faith dealing and agree to forbearance, allowing the homeowner to miss a few payments or make smaller payments for an agreed-upon period. There must generally be an agreement for paying those missed payments back at a specified time.
- If the borrower can convince the lender that they will be receiving monies to bring their loan up to date and will be able to continue regular payments thereafter, the lender may reinstate the loan and stop foreclosure proceedings.
- The lender may work with the borrower to work out a loan modification plan whereby the terms of the loan are changed. The interest rate may be lowered, the length of the loan extended, or a variable rate may be adjusted to a fixed rate loan.
Home Sale Options Available to Struggling Homeowners
If other options fail and it is clear that the homeowner will be unable to save their home, they may attempt a pre-foreclosure sale. If they can receive their asking price, they may have additional income to pay off other bills and recover their financial stability. If they fail to receive an appropriate offer, their lender may agree to other options:
- Selling the home for less than the amount owed, with the lender agreeing in writing to accept the sale amount as paid in full. This is known as a short sale and may save the credit rating of the borrower. Connecticut, however, does allow for deficiency judgments against the debtor for the difference, so it is vital to have this agreement in writing.
- Offering the property deed to the lender to satisfy the debt requirements. This is known as a deed in lieu of foreclosure, and it allows the lender to use their resources to secure a better sale price while relieving the borrower of the complication and expense of selling the home themselves. It may also do little or no damage to the borrower’s credit score.
Bankruptcy Options Available to Struggling Homeowners
If all other options fail, the borrower can file for bankruptcy. While this is a sure way to damage one’s credit rating, it does end their mortgage difficulties and may allow them to rebuild their financial status more quickly. It is more difficult to qualify for some forms of bankruptcy today, but any form will allow an immediate stay, or hold, to be placed on foreclosure and collection actions. Lenders may petition to lift that stay, but that is a time consuming process that allows the homeowner time to determine the next step.
- Liquidation of some personal property through chapter 7 bankruptcy is a difficult step for many people. However, Connecticut provides for a $75,000 homestead exemption, which should protect many homes. In addition, most debts are discharged, or erased, allowing the homeowner to focus on paying their mortgage consistently.
- Reorganizing their finances and proposing a workable repayment plan makes chapter 13 bankruptcy a wise choice for many debtors. The new plan generally has lower monthly payments that fit the filer’s budget. If they can maintain those payments, they may be able to pay off all their debts and get on sound financial footing.
Getting Legal Help Stopping Foreclosure in Connecticut
There are numerous options for the Connecticut homeowner attempting to avoid foreclosure. However, determining which option fits their circumstances can be difficult without a committed foreclosure attorney and the advice of free or low-cost HUD counselors to see them through. In addition, such advice should help them avoid the many con artists seeking to take advantage of vulnerable homeowners.
