How to Stop a Foreclosure in Arkansas
Arkansas is ranked twenty-first in the nation in foreclosure rates, but there are means by which citizens of this state can stop foreclosure and save their homes. Itcan be a difficult road, but depending on a homeowner’s mortgage agreement, they have time to seek options even after their borrower has instituted foreclosureproceedings. The common agreement used in the state is a deed of trust, which is held in trust by the lender until the mortgage is paid in full. Most mortgagesinclude a power of sale clause, allowing the lender to proceed to non-judicial foreclosure upon default and proper notification. Debtors will generally have 120days before a foreclosure is completed, allowing them time to seek one of the many other options.
The first steps for most debtors should include communicating with their lender about their financial struggles. It shows good faith and an effort to solve theproblem to discuss impending difficulties before any payments are missed. In addition, there are counselors with the U.S. Department of Housing and UrbanDevelopment (HUD) who can provide free or low-cost advice for homeowners, and skilled, dedicated legal help is crucial to making wise choices and carryingthem out effectively.
– Requesting time to miss payments or pay reduced payments for a specified period, establishing a time for the lender to repay thoseamounts at a later date.
– Agreeing to make up any missed or reduced payments by a specified time in order to get the mortgage back on its original track.
– Requesting that the lender agree to adjust the loan terms in a way that allows the borrower to continue making regular payments. Thismay mean extending the loan and allowing smaller monthly payments, converting an adjustable rate loan to a fixed rate loan, or reducing the interest rateto allow for smaller payments throughout the life of the loan.
Assistance through Federal Government Programs
In these difficult times, the government has instituted several programs to help struggling homeowners. There are specific requirements for each program, so it isimportant to seek wise counsel to determine which is appropriate.
Homeowner Affordability and Stability Plan – allows some homeowners to refinance their homes at lower rates and payments
HOPE for Homeowners Act – allows some homeowners to adjust mortgages from variable rate to fixed rate, 30-year loans with FHA backing.
Mortgage Forgiveness Debt Relief Act of 2007 – prohibits the IRS from taxing forgiven debt amounts as “income” for qualified mortgages.
Home Sales to Avoid Foreclosure
Homeowners do have the option to sell their home before their lender forecloses; however, in a slow or struggling market, that may not be easy. If the borrowercan sell their home for more than they owe, they may realize sufficient funds to secure new, comfortable housing. In many cases, that is not possible. In thosesituations, they may have no choice but to lose their home in one of two ways:
If the owner cannot find a buyer to pay more than is owed, they may have to settle for a short sale. If a buyer will pay a reasonable price for the home, andthe lender agrees, in writing, to accept that amount to clear the debt, a short sale occurs. Since in some cases, a lender in Arkansas may sue fordeficiency, a written agreement for a short sale protects the borrower from such legal action. However, these agreements often take a significant amountof time to conclude, and not all buyers are willing to wait.
In extremely poor markets, the homeowner may choose to ask their lender to accept the house deed in lieu of foreclosure. The debtor loses their home,but they are spared the complication and expense of selling their home, and in many cases, their credit score is protected.A foreclosure in Arkansas generally takes 120 days or more, so there is ample time to attempt to sell the home before the deadline and avoid a total loss.
Benefits of Bankruptcy
For most people, the final option is bankruptcy. Most do not want the damage to their credit score that a bankruptcy brings, but it does often protect a home fromliquidation in chapter 7 and from loss if a chapter 13 arrangement can be reached. A debtor’s credit rating can begin to be restored quickly with a chapter 7ruling, often more quickly than an ongoing struggle with overwhelming bills would provide.
Both chapter 7 and chapter 13 begin with the court ordering an automatic stay, or hold on foreclosure proceedings or debt collection efforts. A lender mayrequest that that stay be lifted, but even if the court eventually grants that stay, there can be time to reorganize and find some financial stability.
Chapter 7 requires that a debtor liquidate some of their personal property, with the promise of discharging, or erasing, much of their consumer debt. If theirmortgage is secured by their home, the lender may still be able to foreclose, but with much of their either debt erased, they may be able to get back ontrack with their mortgage.
Chapter 13 allows the debtor to reorganize their finances and propose a debt repayment plan that is appropriate for their financial status. This requires
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