OvationLaw's Blog

Also called “B/C Paper,” “near-prime,” or “second chance” lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. A sub-prime loan is one that is offered at a rate higher than A-paper loans due to the increased risk. Sub-prime lending encompasses a variety of credit instruments, including sub-prime mortgages, sub-prime car loans, and sub-prime credit cards, among others.

Sub-prime lending is typically defined by the status of borrowers. A sub-prime loan is a loan made to someone who could not qualify for a more favorable rate. Sub-prime borrowers typically have low credit scores and histories of payment delinquencies, charge-offs or bankruptcies. Because sub-prime borrowers are considered at higher risk to default, sub-prime loans typically have less favorable terms than their traditional counterparts. These terms may include higher interest rates, regular fees or an up-front charge.

Proponents of the sub-prime lending in the United States have championed the role it plays in extending credit to consumers who would otherwise not have access to the credit market.  But opponents have criticized the sub-prime lending industry for predatory practices such as targeting borrowers who did not have the resources to meet the terms of their loans over the long term. These criticisms have increased since 2006 in response to the growing crisis in the U.S. sub-prime mortgage industry, wherein hundreds of thousands of borrowers have been forced to default, and several major sub-prime lenders have filed for bankruptcy.

Are you facing the possibility of a foreclosure? Before bailing out without a parachute, do some homework and see if there are ways to minimize or even eliminate your losses.

Obviously, you're certainly better off selling the house than having it go to foreclosure. If you can find a buyer who will offer to pay at least what you owe your lender, take the offer rather than face a foreclosure. However, this solution is generally not easy to come by and usually not timely enough to satisfy the mortgage company.

If you receive an offer that is for less than what you owe your lender, your lender can actually block the sale. Yet you can approach your mortgage company about a “short” sale or deed in lieu of foreclosure. However, one stipulation to qualify is that you must occupy the property. (A short sale of property is one in which the sale proceeds won't cover the amount owed on the loan and the lender agrees to forego the rest.) Many lenders will agree to a short sale, but some may require documentation of any financial or medical hardship you have experienced before agreeing to a short sale.

Also, be aware of current market values. Check out prices of comparable properties – ones that are the same size in the same neighborhood that sold during the last six to 12 months – on websites such as www.domania.com.

Another option is to simply execute a deed giving the property back to the mortgage company. You do not need to actually qualify for a deed in lieu of foreclosure.

You may have been told by the mortgage company that you didn't "qualify" (mortgage companies typically don’t want the property back), but they cannot stop you from executing a deed in the company's favor. The difference between the house's value (the amount for which the company sells it) and the total balance owed. This difference is called a deficiency. Unless the mortgage company writes off the deficiency, you are still liable for that amount.

If the mortgage company writes off any part of the deficiency, you’ll receive an IRS Form 1099-Misc next year and the amount written off will have to be reported as income. However, you can avoid this if you can show that at the time of the write-off, your debts exceeded the value of your assets. We recommend having an accountant or professional tax preparer assist you before the April 15 filing date.

If you want to try to negotiate with the mortgage company – either on the mortgage now or on the deficiency balance later, visit www.myvesta.org
(formerly Debt Counselors of America), or call 800-MYVESTA.

Foreclosure Proceedings
Most lenders don't start foreclosure proceedings until you've missed four or five payments, but it varies from state to state. Before taking back your house, most lenders would rather rewrite the loan, suspend principal payments for a while (have you pay interest only), reduce your payments or even let you miss a few payments and spread them out over time.

If your loan is insured by a federal agency, such as the Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA), the lender may be required to try to assist you in preventing foreclosure.

Contact Us
If you have any questions about your credit and how bankruptcy and foreclosure affect your credit report, or need credit report repair services, please contact Ovation Law anytime:

Phone: 1 (866) 639 - 3426
Email: info@OvationLaw.com