Few things are more devastating to families than the prospect of foreclosure. You own your home and you love it — it serves you well and you’ve built many memories there. Yet, due to unfortunate circumstances, foreclosure may seem like it’s right around the corner. Perhaps you’ve already been served with a Notice of Default (NOD).
For Hawaii families facing foreclosure, the stress can be almost unbearable because of the large dollar amounts usually involved in island properties. Worse yet, the foreclosure process can take months or even years, stretching out the pain for longer than anyone wants — or it may come quickly out of nowhere with little time to prepare an exit strategy.
Fortunately, you have options available to you here in Hawaii — perhaps more options than you realize. There are many strategies that help for foreclosure in Hawaii; these are legal foreclosure avoidance strategies you can implement to help you resolve your foreclosure issue so you can move on with your life.
In this article, you’ll read about 4 ways that you can avoid foreclosure (there are other ways to avoid foreclosure as well). The goal of these strategies is to help you legally and ethically avoid foreclosure while minimizing the frustration you’re facing as well as any long-term financial commitment or burden to you. Not all of these strategies will apply in every situation, but you’ll probably be able to find at least one of the four ways that will work for you.
Strategy #1: Work out a deal with your bank – loan modification
The first strategy is a “loan modification”. In a loan modification, you’ll sit down with your lender and tell them that you don’t think you can pay your current mortgage obligation but you’d like to figure something out so you can stay in your house and continue to pay your mortgage as best you can.
Contrary to what you may believe, banks don’t want to foreclose! They’re in the business of banking — not owning houses. They want happy customers who pay their mortgages, so lenders are often willing to work with homeowners to figure out a workable plan. This might include a temporary reprieve on your mortgage payments, or it might include a catch-up strategy where your outstanding mortgage payments are spread out so you can catch-up and pay them off (called a forbearance), or it might include a restructuring of the outstanding amounts that you owe. Of course, this option is if you want to stay in your home — not everyone does.
Strategy #2. Bankruptcy
Filing for bankruptcy may seem like an extreme measure (and it is), but it is one of the “tools” in your foreclosure avoidance tool belt. When you file for bankruptcy, you make notice to all of your creditors that you are no longer able to pay your bills. Filing for bankruptcy will put a stop to the foreclosure process because all creditors must stop the collection process.
Filing for bankruptcy, though, is extreme: it may require you to sell off some of your assets in order to pay off your creditors. In addition, a bankruptcy will remain on your credit score for many years, which could impact everything from getting a loan to getting a car… even getting a job. So this shouldn’t be your first line of defense! Consider it carefully among your other options.
If you do choose to go this route, then definitely consult with a bankruptcy attorney. Nothing in this article should be considered legal advice and bankruptcy is a serious legal matter, so be sure to treat it appropriately!
Strategy #3. Short sale help for a foreclosure in Hawaii
A short sale is the third strategy — this is where your lender(s) allow you to sell your home for less than what you currently owe them. A short sale is a preferred method for people facing foreclosure who can’t sell their house for enough money to payoff their loans.
- With a short sale, you get the major bonus of avoiding foreclosure. Yes, you will be able to state on a loan, job or other type of application that you have not been foreclosed upon.
- While you aren’t allowed to profit from the sale (since your lenders are taking an actual loss), depending on the programs available at the time and your situation, you may be entitled to a small sum for relocation.
- Your lenders will typically cover all your closing costs, including any commissions to realtors. This effectively makes a short sale a free option for avoiding foreclosure (there may still be tax consequences – consult a CPA).
- In almost all cases, any deficiencies are waived by your lenders. These are addressed during the negotiation stage.
- Closure — an effective short sale puts it all behind you.
With a short sale, you still end up with the reality of having to leave your home but there is a bright side: The impact to your credit is much less (compared to a bankruptcy or a foreclosure) so this is a smart long-term play to give yourself some options (consult an attorney or CPA with specific legal and/or tax questions).
Strategy #4. Sell your Hawaii house outright “as is”
If you have enough equity in your house, then you can sell your house while avoiding the entire short sale process. For example, if you have a single family home in Honolulu and owe $500,000 to your bank, given today’s market prices, your home is likely worth a lot more than that. In this case, you could still sell your house either on the open market with an agent, or you could sell your house directly for cash to a company that buys houses (like us). If time is of the essence (and with a foreclosure, that’s usually true), then selling directly to a real buyer instead of playing the market usually makes the most sense.
Companies that buy houses in Hawaii – like us – can buy your house “As Is”, meaning you wouldn’t have to put any money into repairs. You also wouldn’t have to pay any commissions, and we could close quickly to avoid a foreclosure action. We can even keep the entire sale private so that none of your neighbors know you’re selling or moving.