The national foreclosure ranking for the state of Delaware is 38th in the nation, and although there are fewer citizens seeking help to stop foreclosure, for them, the need is no less pressing. As a lien theory state, Delaware requires that a loan or mortgage be secured by the property itself. However, Delaware does not allow non-judicial foreclosures for those who default on their mortgages. A judicial foreclosure is required, which can take from 175 to 200 days. It is also unique in that it does not require the lender to prove the homeowner is in default; the borrower must prove that they are not in default. More than other states, then, it is important that in Delaware, residents secure a foreclosure attorney to help them through the process.
Federal Government Programs
Home ownership brings stability to an economy and a nation, which is why the U.S. government has instituted several programs to help struggling homeowners stop foreclosure and keep their homes.
- The incentive-based Homeowner Affordability and Stability Plan encourages lenders to refinance troubled mortgages and provide lower rates or longer repayment plans to allow borrowers to keep their property.
- There are also government incentives through the Hope for Homeowners Act to encourage lenders to adjust the terms of mortgage loans, particularly changing adjustable or high-rate loans to fixed or lower rate loans backed by the FHA. In addition, there are incentives for lenders to waive early repayment fees and late charges, as well as to reduce the principal loan amount.
- The government now protects those who have reached debt forgiveness agreements from having those amounts taxed as income by the IRS. The Mortgage Forgiveness Debt Relief Act of 2007 guarantees that protection.
Loss Mitigation Programs from Lenders
Many lenders have more foreclosures than they can process in the current market. As a result, they may be anxious to avoid adding another. In order to take advantage of this leniency, homeowners need to get in touch with their lenders at the first indication that they may have difficulty making their mortgage payments. Most lenders have loss mitigation departments for this purpose, with several programs to help:
- Forbearance – allowing the borrower to miss payments or make partial payments (to be made up later) for a designated period of time.
- Reinstatement – allowing the borrower to make a few large payments or one lump-sum payment to bring their mortgage current, reinstating the loan at its former terms.
- Loan Modification – agreeing to modify the loan and change its terms by lowering the interest rate, extending the payment schedule and reducing the installment payments, or adjusting a variable rate loan to a fixed rate loan.
Bankruptcy Options
The last hope for some homeowners to save their homes is to file for bankruptcy. This is a difficult step to take, and it does damage a person’s credit rating for a number of years. However, it may put them in a position to begin rebuilding that score more quickly than some of the other options.
- Automatic stay on foreclosure or debt collection – every bankruptcy filing begins with this protection. Unless a lender petitions the court to lift that stay, or hold, the debtor will not be harassed and their lender’s foreclosure suit cannot proceed.
- Chapter 13 – a type of bankruptcy by which a debtor’s assets are reorganized and a new plan is formulated for paying back their debts at a lower rate. Those who follow this plan to its completion will retain their home and be able to restore their credit rating in time.
- Chapter 7 – a type of bankruptcy in which some of the debtor’s property is liquidated while the majority of their debts are discharged, or erased. In Delaware, there is a $50,000 homestead exemption which allows many filers to keep their property.
Short Sale or Deed in Lieu of Foreclosure
If a homeowner has tried all of the other alternatives to no avail, they may ultimately have to lose their home. However, there are alternatives to having it foreclosed upon and facing the damage that does to their credit score. They may try to sell the home themselves for a profit and have income to establish a new residence and pay other debts. If they are unsuccessful, there are two other options:
- Short sale – this occurs when they receive an offer to sell their home for less than the amount owed. They can take this offer to their lender and ask them to accept the smaller amount to clear their debt. However, they must get their lender to agree in writing, because Delaware does allow lenders to due for deficiency, or the difference between the loan amount and the sale price.
- Deed in lieu of foreclosure – some lenders may agree to accept the home in fulfillment of the mortgage, even if it is assessed at a lower rate. They may have real estate contacts who can procure a better price for the home. The lender may also agree not to report this as a default on the homeowner’s credit score.
Getting Legal Help Stopping Foreclosure in Delaware
Knowing the steps of the foreclosure process in Delaware is essential, since it differs from those in many other states. A homeowner may seek advice, which is often free or low cost, from counselors through the U.S. Department of Housing and Urban Development (HUD). In addition, with the complex judicial foreclosure process, it is vital to have a knowledgeable foreclosure attorney at one’s side to take full advantage of all the opportunities to stop foreclosure and save their family home.
