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Reinstatement
A reinstatement is the
simplest solution for a
foreclosure, however it
is often the most
difficult. The homeowner
simply requests the
total amount owed to the
mortgage company to date
and pays it. This
solution does not
require the lender's
approval and will 'reinstate'
a mortgage up to the day
before the final
foreclosure sale.
- Benefit: Does not require the mortgage company or lender's approval.
- Drawback: Requires that a homeowner be able to pay all back payments, fines and fees.
Forbearance or
Repayment Plan
A forbearance or
repayment plan involves
the homeowner
negotiating with the
mortgage company to
allow them to repay back
payments over a period
of time. The homeowner
typically makes their
current mortgage payment
in addition to a portion
of the back payments
they owe.
- Benefit: Allows the homeowner to make back payments over time.
- Drawback: Requires that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies will require a homeowner to 'qualify' for forbearance.
Mortgage
Modification
A mortgage modification
involves the reduction
of one of the following:
the interest rate on the
loan, the principal
balance of the loan, the
term of the loan, or any
combination of these.
These typically result
in a lower payment to
the homeowner and a more
affordable mortgage.
- Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
- Drawback: Requires that a homeowner 'qualify' for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.
Rent the
Property
A homeowner who has a
mortgage payment low
enough that market rent
will allow it to be
paid, is able to convert
their property to a
rental and use the
rental income to pay the
mortgage.
- Benefit: Allows homeowner to keep property indefinitely.
- Drawback: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.
Deed in Lieu of
Foreclosure
Also known as a
'friendly foreclosure',
a deed in lieu allows
the homeowner to return
the property to the
lender rather than go
through the foreclosure
process. Lender approval
is required for this
option, and the
homeowner must also
vacate the property.
- Benefit: Many times in a successful deed in lieu, the lender will forego their right to a deficiency judgment.
- Drawback: Requires that a homeowner vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.
Bankruptcy
Many have considered and
marketed bankruptcy as a
'foreclosure solution,'
but this is only true in
some states and
situations. If the
homeowner has
non-mortgage debts that
cause a shortfall of
paying their mortgage
payments and a personal
bankruptcy will
eliminate these debts,
this may be a viable
solution.
- Benefit: Does not require lender approval.
- Drawback: If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall—not stop—the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.
Refinance
If a homeowner has
sufficient equity in
their property and their
credit is still in good
standing, they may be
able to refinance their
mortgage.
- Benefit: In some cases, this will lower payments.
- Drawback: In today's market, a refinance will almost always raise mortgage payments, and is an expensive process.
Servicemembers
Civil Relief Act (military
personnel only)
If a member of the
military is experiencing
financial distress due
to deployment, and that
person can show that
their debt was entered
into prior to deployment,
they may qualify for
relief under the
Servicemembers Civil
Relief Act. The American
Bar Association has a
network of attorneys
that will work with
servicemembers in
relation to qualifying
for this relief.
- Benefit: If qualified, this will lower payments on all consumer debt in addition to mortgage payments.
- Drawback: Must be active military to qualify.
Sell the
Property
Homeowners with
sufficient equity can
list their property with
a qualified agent that
understands the
foreclosure process in
their area.
- Benefit: Allows homeowner to avoid foreclosure and harvest some of their equity.
- Drawback: In many cases today, homeowners do not have sufficient equity to sell their property without negotiating a short sale (see next solution).
Short Sale
If a homeowner owes more
on their property than
it is currently worth,
then they can hire a
qualified real estate
agent to market and sell
their property through
the negotiation of a
short sale with their
lender. This typically
requires the property to
be on the market and the
homeowner must have a
financial hardship to
qualify. Hardship can be
simply defined as a
material change in the
financial stability of
the homeowner between
the date of the home
purchase and the date of
the short sale
negotiation. Acceptable
hardships include but
are not limited to:
mortgage payment
increase, job loss,
divorce, excessive debt,
forced or unplanned
relocation, and more.
- Benefit: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual's public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to five years for a foreclosure).
- Drawback: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.
This represents only a summary of some of the solutions available to homeowners facing foreclosure. Please call me today for a free confidential evaluation of your individual situation, property value, and possible options.