Foreclosure Moratorium May Give Home Owners One Last Chance

Procedural difficulties have led to a nationwide foreclosure moratorium. If you’re a home owner in foreclosure, use this time to prepare for the next step—or possibly end the foreclosure altogether.

If you're already in foreclosure, the moratorium buys you time to start saving money again. Image: Dreampictures/Photodisc/Getty Images

You may be just starting foreclosure, or just about to end the process—but suddenly, things have ground to a halt as major banks join the foreclosure moratorium and sort out paperwork problems. This may leave you in limbo, but you don’t have to be inactive. You can prepare for the next step in your life, or even continue the fight to keep your home.

I’m facing default and foreclosure. What does this foreclosure moratorium mean for me?

As banks work through this issue, they may be more receptive to approving alternatives to foreclosure, such as a loan modification, if you can prove you’re able to begin making mortgage payments again. If you can’t show income, the bank may be more receptive to a short sale, where you’re allowed to sell your home for less than what you owe the lender.

Keep in mind these options are more likely possibilities in the early stages of the process. Once the bank has proceeded with the foreclosure, it may be less likely to be open to negotiation.

I’m in foreclosure. What does this foreclosure moratorium mean for me?

If you’re in foreclosure, you’ll likely be staying in the home until the bank actually sells the property and has you evicted, says Christopher T. Immel, a foreclosure attorney at Ice Legal in West Palm Beach, Fla. If the foreclosure moratorium continues, this could be indefinitely.

This can give you an opportunity to start saving money again.

If you get your financial affairs in order, can you start paying your mortgage again and get back on track?

Unfortunately, no. “Once you’re in default, the bank accelerates the note,” says Immel. Basically, that means you have to pay back all outstanding amounts or even pay off the entire mortgage. These can be done through redemption or reinstatement, depending on your state’s regulations.

Use this downtime to be proactive, advises New York attorney Wayne Greenwald. “It’s not inevitable. Look at the paperwork. Are the correct people named? The correct property address?” If not, that’s a chance to continue the fight against your foreclosure.

Meanwhile, you may still be on the hook for income taxes once the foreclosure problem is resolved. “If a home is foreclosed upon, the debt is eliminated or ‘forgiven’. Under conventional tax law, forgiveness of debt is a taxable event, includible in the gross income of the individuals whose debt has been forgiven,” says Philip Goldfarb, CPA, with Weisberg, Molé, Krantz & Goldfarb in New York.

However, exceptions do exist, he notes. You can use the foreclosure moratorium period to discuss your situation with an accountant.

This provides general information about tax laws and consequences, but isn’t intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

If my home was wrongly foreclosed, what can I do?

You can fight. You need an attorney who specializes in foreclosure: The legal morass varies not only by state but by each individual case. “You may be able to make a claim to go back if you’ve been wrongfully kicked out—if the bank messed up,” says Florida foreclosure attorney Immel. “The are defenses.”

If new owners are already in your house, however, you could be in for a tough fight. “Getting it back is a lot harder,” says Immel. “We haven’t seen too many situations like that yet—we’re still looking into this.”