Facing Foreclosure in Tennessee: What are Your Options?
The traditional view has been quite simple: (1) keep paying until you no longer can or (2) file for bankruptcy. However, foreclosure defense has become a viable alternative in numerous other states. So, can foreclosure defense work in Tennessee? In some cases, the answer is yes.
There are a few questions to ask before deciding how to approach foreclosure defense. First, do you owe more than the home is worth? Second, do you want to stay in the home? If you stay in the home, you will have a mortgage payment. The next question is, how much of a mortgage payment can you really afford? If the lender will waive or restructure you past due payments, will that be enough? If the lender will renegotiate to allow a lower payment, will that be enough?
If you are not going to stay in the home, there are a few options: (1) sell the home yourself (i.e., a short sale), (2) voluntarily turn the home over to the lender (sometimes called a "deed in lieu of foreclosure), (3) file for bankruptcy. Selling the home will have the least effect on your credit score. However, if you sell for less than the amount you owe on the mortgage, you will likely be responsible for the difference. At that point, you'll have to negotiate with the lender on the amount and payment terms for the remaining balance. Using a "deed in lieu of foreclosure" will show up on your credit score, but may be a better option if you cannot pay the remaining balance that would be due on a short sale. However, lenders often will not agree to a "deed in lieu of foreclosure" without a significant struggle. Finally, filing for bankruptcy will stop a foreclosure. If you choose a Chapter 13 bankruptcy (called a "reorganization"), you'll have the chance to keep the home under new terms. If you choose a Chapter 7 bankruptcy (called a "liquidation"), you will not keep the home, but you also will not owe anything further on the mortgage. Obviously, bankruptcy has the most severe effect on your credit score.
If you are going to stay in the home, there are two additional options available: (1) loan modification and (2) foreclosure defense. Loan modification has been in the news a lot lately, mainly because of reports indicating that lenders have not been as quick to modify loans as the federal government would. However, the strategic use of foreclosure defense and/or bankruptcy can force the lender to the bargaining table. Foreclosure defense is a relatively new area of the law being used with significant success in states like Florida, California, and New York. The same techniques are available in Tennessee, though. Those techniques will be discussed in detail in a later post on this blog.
If you are facing foreclosure, the earlier you start exploring your options the better. Don't wait until the foreclosure notice arrives. If you have already received a foreclosure notice, you have no time to waste.
