Louisiana has a unique foreclosure law that puts many homeowners in a position to be unable to stop foreclosure if their lender begins the process. It does have a relatively low foreclosure ranking, at thirty-seventh in the nation. However, only judicial foreclosure is allowed, with two types typical: executory and ordinary. Under executory foreclosure, the lender includes a confession of judgment clause in the mortgage, which acts as confirmation that the lender may take a borrower in default to court to file for foreclosure. Ordinary foreclosure is a more common form allowing for a contested foreclosure. The executory foreclosure process generally takes approximately six months while ordinary foreclosure often takes between 180 to 280 days. There is no right of redemption once the foreclosure is complete. However, a lender only has the right to file a deficiency judgment for the difference between a foreclosure sale and the loan amount under the executory foreclosure process. Many of these issues make the Louisiana foreclosure process more complex than some others, making it more important than ever to find alternatives before the foreclosure process is complete.
Avoiding Foreclosure: Government Programs
Federal and state governments have provided some programs to help owners prevent foreclosure. Three of the most powerful are:
- The Homeowner Affordability and Stability Plan, which is part of the President’s Making Home Affordable program. It offers lenders incentive money if they refinance or adjust the terms and rates of mortgages for struggling homeowners.
- The Hope for Homeowners Act offers those same types of incentives, particularly for variable rate or high rate mortgages, plus additional money for reducing principal amounts and waiving early repayment and late payment fees.
- The Mortgage Forgiveness Debt Relief Act of 2007 protects homeowners who have had any amount of debt forgiven by a lender. Previously, those amounts were taxed as income by the IRS, but the new law prohibits such action.
Not everyone qualifies for these programs, but counselors with the U.S. Department of Housing and Urban Development (HUD) can provide free or low cost guidance and application assistance in conjunction with a debtor’s foreclosure attorney.
Avoiding Foreclosure: Lender Assistance
Many lenders have no desire to add more foreclosure cases to their growing backlog. If they believe they have borrowers who can fulfill their mortgage obligation, they may be willing to work with them through one of the following arrangements:
- Sometimes a lender will be willing to modify a loan by extending the terms, changing from variable rate to fixed rate, or lowering the interest to ensure that a borrower will be able to keep their home and complete their mortgage contract.
- Some lenders will be willing to reinstate a loan that was in default if a borrower knows they are coming into some money to make large or lump sum payments to bring the mortgage current.
- Many lenders may be willing to show forbearance to borrowers who have temporary financial setbacks. This means that they will allow some partial, late, or missed payments if the homeowner agrees to pay them back at a future date, such as the end of the mortgage schedule.
Avoiding Foreclosure: Bankruptcy
Once a homeowner in default determines that none of the simple options will save their home, they may determine that bankruptcy is their best option. While the damage done to their credit rating will last a number of years, it may provide the relief they need to get back on track and save their home.
- The process begins by the court ordering a halt, or stay, on all efforts to collect outstanding debts and to foreclose on mortgages in default, giving the debtor time to catch their breath and make some decisions about their options
- Chapter 13 or reorganization – a type of bankruptcy whereby a debtor works with their lawyer and their bankruptcy trustee to work out a repayment plan that fits their current budget. If they can maintain that plan, they may be able to save their home.
- Chapter 7 or liquidation – a type of bankruptcy in which many of a borrower’s debts are erased, although the process may require that some of their property be liquidated. In Louisiana, bankruptcy laws allow a $25,000 exemption for most residential property..
Avoiding Foreclosure: Home Sales
If there is no other way to save their home, the homeowner may determine that selling it themselves before foreclosure is their best option. If they can do so for a price above the remaining mortgage amount, they will clear that portion of their debt. If they are unable to obtain such a buyer, they may seek other options:
- Asking their lender to approve a short sale, whereby they accept the sale amount to satisfy their mortgage even if it is less than the remaining amount due. It is important to have this agreement put in writing, however, to avoid the chance of a deficiency judgment for the difference.
- Offering their deed in lieu of foreclosure, in hopes that their lender will accept that to satisfy their mortgage debt. Again, this agreement should be put in writing to avoid deficiency judgments. Lenders may agree to forgo sending a negative credit report about the transfer, as well.
Getting Legal Help Stopping Foreclosure in Louisiana
Louisiana foreclosure laws are more complex than those in many other states. It is crucial that residents who are facing financial difficulties and potential foreclosure have a dedicated foreclosure attorney at their side to avoid scams, help them make wise choices, and keep the home they’ve worked so hard to obtain.
