How to Stop a Foreclosure in Kentucky

Kentucky has a number of restrictions, including a prohibition against non-judicial foreclosure, providing more opportunities to stop foreclosure than some other states. As the forty-first ranked state in foreclosure procedures, Kentucky provides a number of alternatives for those who face default on their mortgage, including a limited right of redemption during the approximately 150 days it takes to conclude the process. In addition, there are other programs and actions a homeowner may take to avoid foreclosure. Kentucky only allows judicial foreclosures, and if a lender pursues that process, they may also bring a deficiency judgment for the difference between the foreclosure sale price and the remaining mortgage debt.

Avoiding Foreclosure with Lender Help

One of the first sources of assistance for a struggling homeowner is their own lender. They may be buried in costly and complex foreclosure processes and be more than willing to avoid any new actions if possible. Contacting them early in the default process shows good faith and often finds them more willing to agree to one of the following alternatives:

• Forbearance agreement – whereby the lender is confident that if they allow a few late, partial, or even missed payments, with an agreed-upon time to make them up, which is often at the end of the loan, the borrower may be able to complete the terms of the mortgage.

• Loan Reinstatement – if the borrower shows they are soon to come into additional income and will soon be able to make one or more large payments to catch up on their loan, the lender may agree to reinstate the mortgage.

• Loan Modification – if a borrower can show that they will be willing and able to keep up with mortgage payments that have a lower payment amount due to a change in terms, the lender may modify the loan and allow them to keep their home.

Avoiding Foreclosure with Government Help

There are a number of federal and state assistance programs to help homeowners avoid foreclosure on the family home; however, not all lenders qualify for all of the programs. To find out if they are eligible, borrowers should consult with a U.S. Department of Housing and Urban Development counselor. They are generally free or low cost, and can guide the borrower through the choices, as well as the application process. The most common federal programs include:

• A plan whereby government monies are offered as incentives to lenders who refinance or adjust the terms of costly loans, especially those that have high interest or adjustable rates. This Hope for Homeowners Act also provides incentives for lenders to lower the loan principal or waive early or late payment fees.

• Another plan offers incentives to lenders to change the terms of costly and unmanageable loans is known as Homeowner Affordability and Stability Plan.

• A new law protecting homeowners who have had any form of debt forgiveness from having those monies taxed by the IRS as income was passed in 2007 as the Mortgage Forgiveness Debt Relief Act.

Avoiding Foreclosure through Bankruptcy     

Those who cannot find sufficient help through their lender or government programs may have to turn to bankruptcy.

• Some debtors merely need lower payments and some time to reorganize their finances and bills to a level they can maintain. Chapter 13 bankruptcy does so, with the help of the filer’s attorney and bankruptcy trustee. If the homeowner can maintain their payments under the new plan, they may be able to save their home.

• Some debtors need to have many of their debts forgiven through Chapter 7 bankruptcy. However, under this plan the filer may also be required to liquidate some of their personal property. Under Kentucky state laws, up to $5,000 of residential property may be exempt from liquidation.

Avoiding Foreclosure through a Home Sale

If a homeowner is unable to avoid foreclosure in any other way, they may be able to sell their home before the foreclosure process concludes. If they can do so for more than the mortgage balance, they will avoid foreclosure and any deficiency judgments as well. If not, there are other options:

• They may be able to sell their home for less than the mortgage balance and negotiate with their lender to agree to accept that as satisfaction for their loan. However, any such short sale should be agreed upon in writing to protect the homeowner from a deficiency judgment for the difference.

• They may be able to negotiate with their lender and convince them to accept the deed in lieu of foreclosure and as complete satisfaction for their house note. Again, the borrower should have a copy of this written agreement to avoid a deficiency suit in the future.

Getting Legal Help Stopping Foreclosure in Kentucky

There is one final option for homeowners. If their home sells at a foreclosure auction for less than two-thirds of the appraised value, the homeowner has one year to redeem their property for the sale price plus ten per cent interest. In addition, the right to redeem the property may also be sold to a third party. Clearly, there are complex issues involved in both Kentucky foreclosure, and in a homeowner’s efforts to stop foreclosure. Few debtors can find all the opportunities available to save their home, as well as to avoid the pitfalls of con artists who are so active today, without the help of a skilled attorney and a dedicated HUD foreclosure avoidance counselor.