It is estimated that nearly 50,000 Indiana residents face some form of foreclosure action each year, making it twentieth in the nation, and a state of many residents who are looking for ways to stop foreclosure. Indiana is a lien theory state, which means that the property serves as security for a mortgage loan. However, if the homeowner defaults on their mortgage, there is no non-judicial means of foreclosure, the lender must take their case to court. If a foreclosure is approved, an uncontested foreclosure generally takes 150 to 200 days. In addition, the lender then has the right to sue for deficiency, or the difference between the foreclosure sale price and the balance of the mortgage loan. For those who apply, however, there are alternatives to foreclosure that may allow them to save their homes.
Federal Foreclosure Alternatives
The federal government has promised to invest millions of dollars in incentives to encourage lenders to assist struggling but reliable homeowners save their homes. The requirements to qualify can be complex, so it may be wise to call on an attorney or a free or low-cost counselor from the U.S. Department of Housing and Urban Development (HUD) to help determine if a particular borrower is eligible. Some of the most popular programs include:
- A 2007 law protects those who have had any amount of their mortgage forgiven from having that amount assessed as income and taxed by the IRS. The law is called the Mortgage Forgiveness Debt Relief Act.
- A plan which provides incentives to lenders for refinancing high rate mortgages or changing the terms of variable rate mortgages is called the Homeowner Affordability and Stability Plan.
- Another program to offer incentives to lenders who refinance or adjust the rates of mortgages homeowners cannot sustain is called the Hope for Homeowners Act. There are additional incentives for those who waive early or late payment fees and reduce principal amounts.
Mortgagor Alternatives
One of the first places a borrower should go is to their lender, and the earlier they contact them the better. Even before payments are missed or late, it shows good faith to contact a lender and let them know that the borrower may soon be in financial trouble. The lender’s loss mitigation department may then be able to help is several ways:
- The lender may show forbearance and forgive a few late or missed payments for a reliable borrower in temporary trouble, with an agreement that those payments be made up at a specified time.
- The lender may allow the borrower to make up missed or partial payments in several large payments or one lump sum payment if they are expecting additional income in the near future, reinstating the loan to its previous status once those payments are made up.
- The lender may allow a loan modification, changing the terms or rates of a loan if they believe the borrower will be able to sustain such a mortgage.
Bankruptcy Alternatives
If none of these alternatives is sufficient to relieve a debtor’s financial difficulties, they may have to file for bankruptcy. The downside is that their credit score is damaged for a number of years; however, on the positive side, they should be able to clear most of their financial difficulties and begin to restore their credit score sooner than through some other options.
- The process begins with a court-ordered stay, or hold, on all foreclosure proceedings and collection actions, giving the borrower some breathing room.
- Chapter 7 bankruptcy is a way to have many debts erased, although the debtor may have to liquidate some personal property in the process. In Indiana, there is a $15,000 exemption for a filer’s residential property, often allowing them to save their home.
- Chapter 13 bankruptcy is way to reorganize the borrower’s finances with the help of their bankruptcy attorney and the bankruptcy trustee. Their debts are consolidated and a new repayment plan that fits their budget is established. If they can sustain those payments, they may be able to save their home.
Home Sale Alternatives
For some homeowners, their financial troubles are too difficult to solve in a way that will save their home. However, they still may not have to give it over to their lender in a foreclosure. If they can sell it themselves within the 150- to 200-day window before the foreclosure is complete, they may be able to receive an offer to cover their mortgage and sometimes even more. If not, there are still other options:
- They may receive an offer a bit lower than the mortgage amount and have their lender agree to accept that amount to satisfy the mortgage. This is called a short sale, but the borrower must be sure to get this agreement in writing to avoid a deficiency judgment for the difference.
- They may offer the deed to the house outright to the lender to satisfy the mortgage debt. This is called a deed in lieu of foreclosure, and in some cases, the lender will not even send a negative report to the credit bureaus, protecting their credit score.
- In Indiana, the homeowner may agree to waive the 150- to 200-day wait for the conclusion of a foreclosure sale, in which case the law does not allow the lender to sue for deficiency.
Getting Legal Help Stopping Foreclosure in Indiana
Clearly, there are options for the homeowner in Indiana to attempt to stop foreclosure on their home. However, not everyone qualifies for all of these options, so they should consult a HUD counselor or foreclosure attorney to help guide them to the alternatives that apply and help them steer clear of scams and con artists.
