Thousands of Hawaii residents are concerned with finding methods to stop foreclosure on their homes in these troubled economic times. Fourteenth in the nation in foreclosure rates, Hawaii’s primary method of foreclosure is non-judicial, since most mortgages include a power of sale clause, empowering the lender to put the property up for public sale if the borrower defaults. As a title theory state, the mortgage is held in trust until the debt is paid in full. Upon default, the borrower generally has sixty to ninety days before the foreclosure is complete, during most of which time they may still redeem their property. However, even before that point, there are avenues the debtor may pursue to stop foreclosure.
Lender Options
Possibly the least damaging option a struggling homeowner may face is that of contacting their lender early in the process to negotiate one of the following alternatives. Lenders are much more willing to discuss these alternatives if the borrower contacts them prior to any missed or late payments.
- Reinstatement – for borrowers who can make several large payments or one lump sum payment to catch up and get back on their repayment schedule, lenders may be willing to reinstate their loan from default.
- Modification – borrowers who can show that they are willing and able to work hard and keep up payments at adjusted terms (generally from a variable to a fixed rate loan), a lower rate or a schedule that is within their budget may be able to negotiate a loan modification.
- Forbearance – debtors who can show that they are merely facing a temporary setback in their financial status may be able to negotiate with their lenders to overlook a few missed or partial payments, as long as they agree to make up those amounts later in the loan schedule.
Government Assistance Options
There are a number of federal programs by which lenders are given incentives for helping struggling homeowners avoid foreclosure. Counselors from the U.S. Department of Housing and Urban Development (HUD) can help a debtor determine if they qualify for any of these programs. Although there are many, the three most prominent plans include:
- Hope for Homeowners Act – a plan giving lenders incentives to adjust the terms of a loan or refinance loans with high interest rates or variable interest rates to lower or fixed rate mortgages, often with FHA backing. These plans also may include incentives to lenders who waive late fees or early repayment charges.
- Homeowner Affordability and Stability Plan – providing additional incentives to lenders who will refinance or adjust loans for those struggling to retain their homes.
- Mortgage Forgiveness Debt Relief Act of 2007 – prohibiting the IRS from levying income taxes on forgiven debt amounts.
Bankruptcy Options
There are times when what seems to be the worst option becomes the best one. That may be the case with bankruptcy for some troubled homeowners, since it provides time for the debtor to consult with legal and financial advisors and find alternatives in spite of its serious drawbacks. Regardless of which option the borrower chooses, a bankruptcy judge will put an automatic stay, or hold, on all collection and foreclosure procedures, giving the homeowner time to choose an appropriate resolution.
- Debtors may have most of their consumer debt discharged, or erased, in Chapter 7 bankruptcy. However, they may also face liquidation of some of their personal property in the process. Hawaii does offer a homestead exemption of between $20,000 and $30,000 that may allow them to save their home.
- Borrowers with enough income to pay smaller installment payments may be able to file for Chapter 13 bankruptcy. They can reorganize their finances and create a repayment plan for all of their debts, with the help of their lawyer and their bankruptcy trustee. Once approved, they must keep up with this plan in order to forestall foreclosure, pay their debts, and keep their homes.
Home Sale Options
Some homeowners find themselves in so much financial trouble that it is too late to save their homes; however, they may still be able to stop foreclosure by selling their home themselves. If the market allows, they may even be able to pay off their mortgage and realize a profit. If they cannot get a sufficient offer, however, they may have to settle for other alternatives.
- If they find a buyer who makes a reasonable offer just a bit lower than the payoff amount of their loan, their lender may accept the proceeds to satisfy that mortgage. This is called a short sale. It is crucial to get this agreement in writing, though, so that the lender will not seek a deficiency judgment for the difference.
- A lender may also agree to accept the property deed in lieu of foreclosure, opting to sell the home themselves when the conditions are right. Again, this leaves the borrower without a home, but some lenders may choose not to send a negative report to the credit bureaus. In addition, the agreement must be in writing to avoid a deficiency judgment.
Getting Legal Help Stopping Foreclosure in Hawaii
A borrower has until three days before the foreclosure sale to redeem their property by paying their lender in full or completing one of the many alternatives. It is important for debtors to get quality advice from their lawyer or a HUD counselor to learn for which they might qualify in order to stop foreclosure proceedings. In addition, they should be wary of other debt counselors, consolidators, and modifiers who charge high fees. Their lawyer can also help them avoid scams and pursue only legitimate alternatives to foreclosure.
