Foreclosure options in Travis County

[Juan Cordero]

Hi,

I have 2 simple questions about foreclosures in Austin.

First, are there any foreclosure laws specific to Travis County I should be aware of before providing options to someone facing foreclosure?

And second, do banks in Austin offer forbearance plan, short sales, or repayment plans?

I'd like to be well informed on what a homeowners options are before actually providing solutions on how to avoid foreclosure. 

Thanks.

[Alex G.]

@Juan Cordero  Over the years I bought a good number of properties in pre-foreclosure situations. As a result I accumulated a fairly extensive body of knowledge about the process from default to the auction.

Foreclosures are governed by the state of Texas laws. There are no laws specific to any county in the state. There may be county specific minor procedures, not laws, as to where the notices are posted in the county (usually on the billboard), at which exit of the courthouse the foreclosure auction takes place, etc. 

You mentioned specifically "banks is Austin" in your question. Is the loan from a small Austin area bank? That would be quite unusual. Most of the loans out there are from large statewide and nationwide lenders, not small local banks. Forebearance was a form of a repayment plan offered by most lenders in times prior to the last mortgage crises of 2007-08. That plan made it very difficult, almost unrealistic for the owner to repay the arrearage. 

With forebearance (a) the lender required a significant down payment towards the balance, usually about 1/3 of all past due amounts, (b) the remaining balance was amortized over a very short term, typically 2-3 years which drove the payment on the arrearage to be signficant (in several hunded dollars a month), (c) the owner would have to make 2 separate payments, one on the regular loan, as usual and the other on the arrearage. 

In a way, it is a repayment arrangement similar to the one offered in bankruptcy proceedings.  This would often push the total debt payment up by 30% and made it impossible for the owner to keep it up. Many owners subsequently defaulted on these forebearance repayment plans.

Post 2008, Obama administration made a big push on creating a lot more affordable repayment plans that allowed the owner roll all their arrearage/delinquency into the total loan balance, and gave the owner a signficantly lower interest rate. I've seen Loan Modification agreements with as as low as 1-2% APR rate. This, in turn, reduced the overall loan payments significantly and created a real relief for the owners who were able to make these lower payments.

The Loan Modification is a current indstry standard for repayment agreements between lenders and borrowers. Typically Loan Mod requires a hardship package from the owner, a qualification process, etc. I'm finding that 10 years removed from the mortgage crises, most lenders are still quite liberal in working with the owners and allowing them to stay in the house and make lower payments IF the owner is cooperating, responding to letter and applying for a Loan Mod. Not sure if there are still some incentives in place from the federal  administration, or lenders just learned that it's cheaper to keep the owners in the houses and paying for as long as they can. 

Outside of Loan Mods, the options of the owner in foreclosure are:

- Bankruptcy (Ch 13 usually puts the owner of the repayment plan like forebearance; Ch 7 takes the property out of owner's hands and puts it into hands of the BK trustee who will sell it to pay the creditors)

- A lawsuit against the lender for wrongful foreclosure or other legal cause 

- A loan from family and friends to bring the loan current

- A loan from their employer 

- A loan from their 401K plan or IRA (usually up to 50% of the balance is accessible and the money is not taxable)

- An emergency withdrawal from their 401K or IRA (they'll have to pay taxes but no penalties)

- A sale of the home to a family member who could supply cash to bring the loan current, with an option to repurchase

- A hard money cash out loan against an investment property or land, assuming they have one with lots of equity

- Sale of the investment property or land to raise cash

- Lastly, a sale of their home to a 3rd party whether through a realtor or via a direct sale to an investor like yours truly.

As always, tread carefully as this is a high liability / litigation prone area. Have owners sign disclosures where you clearly explain your role and intent, any agency relationship (or disclaimer thereof),  and an advice to the owner to seek independant legal and financial counsel.