Received a Notice of Default (“NOD”): What are some of your options?

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Although the peak of the housing crisis is in the rearview mirror, Notice of Defaults (“NOD”) and Trustee Sales continue for many homeowners. The question is “What do you do when you receive a NOD?”  One thing is for sure, sticking your head in the sand like an ostrich and pretending it is not happening is not a productive course of action.  In California, a NOD represents the beginning of the foreclosure process.  Lenders (all lienholders) have to wait 90 days from the issuance of the NOD before they can issue a Notice of Trustee Sale (“NOTS”) and the sale date has to be 21 days from the date of the NOTS.  So the minimum amount of time that a homeowner has from the Date of the NOD to earliest date that the property can go to sale is 90 days + 21 days.  So pretending that nothing is happening is not an efficient use of time.  Additionally, chasing after “leprechauns” and “unicorns” can be equally unproductive and, in most cases, detrimental to a homeowner’s situation.  By leprechauns and unicorns I mean paths of action that have an extremely low probability of success.  These paths of actions are usually driven by emotions such as desperation and false hope.

Loss Mitigation Photo-Are you in danger of losing your house

The threat of losing a home can be an extremely emotional time and emotions such as fear and panic can drive out logic and patience and begin driving decision making.  The key once a NOD is received is to not panic.  Remain calm and take a few deep breaths.  The next step is to seek out someone experienced with foreclosure and lender issues.  Homeowners facing foreclosure should not seek out companies or individuals that merely tell them what they want to hear.  Believe me, they are out there.  They will tell you everything will be okay; that you will be able to keep your home; that they are the most experienced at handling your situation; and that you have nothing to worry about.  Homeowners should immediately hang up the phone on anyone that paints a rosy picture of the process.  The truth is that obtaining a loan modification or stopping foreclosures is more difficult than ever.  Not impossible, just very difficult.  In order to determine whether or not you have a chance of success of keeping your home a thorough review of your situation must be made.

So, what are the options?  First, there are loan modifications.  Loan modifications are adjustments to the terms of your existing loan.  Loan modifications are subject to a Net Present Value (“NPV”) analysis which is essentially a computer program that determines whether giving you a loan modification is in the best interests of the investor of your loan.  The NPV takes into consideration all variables associated with your situation such as months delinquent, current market value of the home, current interest rate, proposed interest rate, current remaining term of the loan, proposed term of the loan, etc.  If the NPV issues a PASS that means that your loan is worth more to modify than to foreclose.  If the NPV issues a FAIL that means that the investor feels that less money will be lost via a foreclosure.  Fighting for a loan modification in 2016 can be tricky and if you are going to have someone help you make sure that they know what they are doing or you might lose precious time.  Another option is to file a Chapter 13 Bankruptcy.  This is a viable option IF you are able to begin paying on your loan at its present terms AND if you are willing to pay a trustee payment on top of the current payment.  I suggest you do not let emotion get in the way when analyzing whether a Chapter 13 makes sense.  A third option to avoid foreclosure is to short sell your home.  I know a lot of people do not like that option BUT sometimes it is the best option.  Plus, with the HAFA incentive as high as $10k, you might have a financial reason to cooperate with the short sale process.  Additionally, a short sale will allow you to control the “chaos” of the foreclosure process.  Most lenders will work with homeowners and allow the property to be sold via short sale which can potentially 1) allow you to stay in the home longer (short sales take on average 3-6 months) and 2) make it easier for you to qualify to purchase a new home in the future.  Another option is to give the house back to the lender via a Deed-in-Lieu (“DIL”).  DILs will work provided your title is not clouded with issues such as junior liens, solar liens, judgment liens, HOA assessments and/or liens, etc.  Finally, you could always try and file a lawsuit against the lender.  This option can be costly and the probability of success can be very low.  However, sometimes homeowners want to exhaust all options prior to accepting that the reality that there might not be a way to save the home.

My suggestion is to 1) seek out competent assistance and 2) think of your situation as a business decision.  Keep emotion out of the process as much as possible.

For more information on foreclosure alternatives please contact Michael Gaddis, J.D. at Michael@MichaelGaddis.com or by calling 760-692-5950.  Michael Gaddis, J.D. helps homeowners throughout the State of California.