Alternatives to Foreclosure
Solutions If You Want To Keep Your Home
- Bring your payments current (also, “reinstatement”)
You pay your lender the full amount due, including all back payments, fines and fees. Although this is often difficult, you may get a new job, get assistance from family, cash-in other assets, etc. Reinstatement of a mortgage doesn’t require lender approval. You call the servicer and ask for reinstatement amount good through the time you are able to provide the money, send the money by that date, and then just continue to make your regular payments.
If you have enough equity in your home and your credit is still in good standing, you may be able to refinance an unaffordable loan and achieve lower payments. With today’s housing values and the costs of refinancing, a homeowner must be sure a refinance is a possible solution. If you purchased your home with little or no money down or your home has gone down in value, you may not quality for a refinance.
- Rent the property
For homeowners who have mortgage payments low enough that a rental payment allows the loan to be paid. With rental properties, however, many expenses, taxes, insurance and landlord responsibilities are a factor, and rental income may not cover the full cost of ownership and maintenance. If a solution for you, you can keep the property indefinitely while living somewhere else.
- Loan modification
If you can make payments on your loan, but don’t have enough money to bring your account current, your lender may change the terms of your original loan to absorb your delinquent payments and make the payments more affordable. Your loan could be permanently changed by adding the missed payments to the back end of the existing loan balance, or lowering the interest rate or making an adjustable rate fixed, or extending the number of years you have to repay your loan. Homeowners must qualify for the new payment and requires full documentation. Because of additional debt such as credit cards, car payments, medical bills, and student loans, some people do not qualify for a loan modification.
- Payment plan (also, “forbearance”)
A forbearance agreement means you pay only a portion of your regular payment — or no payment at all — for a specific period of time based on your current financial situation. This temporary solution provides time to save money, pay off other bills, find employment or additional employment, or recover from injury or illness. At the end of the forbearance period, you begin making regular payments as well as an additional amount to pay off the past-due amount. Active duty military service members may be eligible for special mortgage relief assistance.
Solutions If You Cannot Keep Your Home
- Sell Your Home
In some case the best plan is to just sell your home. Although it may be hard, it is the least damaging to your credit and is usually the least hassle. If you have enough equity to pay a real estate agent, and some will negotiate a lower fee to help you sell your home, you can sell your home and pay off the mortgage(s). Some Lenders may give you extra time to sell the home as long as they see the house is listed for reasonable price. This will save your credit and let you build your life back up so you are able to buy your next home. In some cases, with enough equity, you will be able to walk away with some money in your pocket.
- Short sale
If you owe more on your home than the home is worth, you can hire a short sale real estate agent to market the property and negotiate a short sale agreement with your lender or mortgage servicer. A short sale allows you to avoid foreclosure and minimize the damage to your credit score. You may avoid a deficiency judgment if your lender forgives your mortgage debt in its entirety according to the terms outlined in The Mortgage Debt Relief Act of 2007. Also a short sale keeps a foreclosure off your credit record. Fannie Mae has reduced the mandatory waiting period to establish credit history after a short sale to 2 years. This waiting period after a short sale is lower than the required 5-7 years following a foreclosure. A short sale is only a viable alternative if your home is worth less than what the mortgage(s) are.
- Deed-in-lieu of foreclosure (also, “friendly foreclosure”)
Deed-in-lieu of foreclosure means you return the deed and house to the bank instead of facing foreclosure and walk away. Lender approval is required. If you have more than one mortgage this may not be an option for you. Some lenders want to see the house on the market for at least 3 months before they consider accepting a deed in lieu. Fannie Mae has reduced the mandatory waiting period to establish credit history to a minimum of 4 years, so therefore this may be a better option for you if you want to establish home ownership in the future. This waiting period after a deed-in-lieu of foreclosure is lower than the required 5-7 years following a foreclosure.
Seminar and webinar schedule available. To learn more about Real Estate Mortgage Notes, contact Real Property Financial today or call (303) 674-0139.