In the state of Pennsylvania, homeowners seeking to stop foreclosure actions by their lender need to understand their existing mortgage agreement, as well as options afforded to them by their lender, government assistance programs, and other foreclosure prevention methods. With this information on hand, via a foreclosure attorney, FHA counselors, and from their lender, a homeowner can take concrete action to prevent foreclosure both temporarily and preferably, in the long term. Below are common options used by homeowners struggling to meet their existing mortgage obligations in order to prevent foreclosure.
Loss Mitigation Methods Offered by Lenders
Mortgage lenders frequently refer struggling homeowners to their loss mitigation department in order to determine the appropriate method of stopping foreclosure on an existing mortgage loan. In most cases, a lender does not wish to see an existing mortgage loan in default and go through the judicial foreclosure process. Therefore, lenders in Pennsylvania will common offer one or more of the following temporary measures to prevent foreclosure, including:
- Forbearance, which if applied to an existing mortgage loan, will allow a homeowner to miss or make partial payments on an existing mortgage loan temporarily, while they regain financial stability. The terms and length of a forbearance period will vary and the unpaid amount is built back into the life of the loan, but this temporary reprieve may allow a homeowner to prevent foreclosure
- Loan modification, which can take the form of one or more adjustments to an existing mortgage, will ultimately seek to make payments more manageable for homeowners on a monthly basis
- Loan refinancing, which will require a homeowner to enter into an entirely new mortgage agreement, that will ideally include more favorable terms, rates, and other factors that make meeting monthly payments more manageable for the homeowner and allow them to keep their home
Federal Assistance through Housing Programs and Foreclosure Prevention Acts
The federal government, through the U.S. Department of Housing and Urban Development and the Federal Housing Administration, offers free counseling to struggling homeowners, which can inform homeowners of their eligibility for certain federal and applicable state foreclosure relief and prevention programs. The most notable of these federal programs currently include:
- The Homeowner Affordability and Stability Act, which for eligible homeowners, allows certain loan modifications on existing mortgages that may make meeting monthly payment obligations more manageable
- The HOPE for Homeowners Act, which if eligible, allows certain homeowners to change their existing variable rate mortgage into a fixed rate mortgage with their lender through an FHA backing program
- The Emergency Economic Stabilization Act of 2008, which extends provisions of the Mortgage Forgiveness and Debt Relief Act that allow tax benefits for homeowners discharging debts related to mortgages in default that normally would have become taxable income under IRS regulations
Short Sale and Deed in Lieu of Foreclosure Agreements with Lenders
If a homeowner simply wishes to avoid foreclosure, but accepts that they no longer can maintain the financial obligations required to live in their current residence, selling the home is an option. If sufficient value exists in the home and enough equity exists in an outstanding mortgage, some homeowners can simply sell their home and repay all outstanding mortgage debts, while retaining some income to find another residence. In most other cases, homeowners do not have sufficient equity built up in a home to cover all mortgage debts in the event of a sale. Lenders, if negotiated with the help of a lawyer, can offer the following solutions for approved homeowners, including:
- Deed in Lieu of Foreclosure, which will allow a homeowner to turn over a property to their lender, in exchange for forgiving all debts related to a given property and mortgage
- Short Sale, which will involve selling a given property at a set price, which is less than the total amount owed on a homeowner’s mortgage. The amount short from the sale of the home is then forgiven by a lender. Short sales require finding a third party buyer and negotiating with one’s lender beforehand to facilitate a favorable short sale
Chapter 7 and Chapter 13 Bankruptcy Relief Options
Automatic stay provisions applicable to any bankruptcy filing will prevent foreclosure actions from taking place, at least temporarily. If a homeowner continues with filing bankruptcy, the following chapters of bankruptcy afford them these options:
- Chapter 7 liquidation bankruptcy offers debtors the option to liquidate their home, while discharging all attached mortgage debts. Chapter 7 also requires liquidation of all other assets, aside from exemptions, but also discharges most other debts, as well. Homestead exemptions applicable to the state of Pennsylvania are non-existent.
- Chapter 13 reorganization bankruptcy can provide homeowners with a consolidation of all debt obligations, including mortgage debts, into a single monthly payment supervised by a bankruptcy trustee. This may allow a homeowner to reduce all outstanding debts, and in turn, be able to meet monthly payment requirements in order to keep their home.
Getting Legal Help with Foreclosure Prevention in Pennsylvania
Homeowners facing default and foreclosure on their mortgage in Pennsylvania should consult with an attorney practicing foreclosure prevention law to have all available legal options afforded to them. By using a lawyer, homeowners increase their chances of negotiating a favorable outcome with their lender, whether through refinancing, modifications, or short sales, while ensuring their ability to remain in a home or prevent deficiency judgments and other future debts.
