Know The Pros and Cons of Your Options to Foreclosure.
There several alternatives to be had for local residents facing foreclosure. Listed below is a concise review of some of them. There may be other options available for you.
Your avoid foreclosure choices may include:
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. Even if this option will be difficult for you most of the time, you may get a new job, get support from family, cash-in other assets, etc. Homeowners can re-establish a mortgage up to the day before a final foreclosure sale, and it doesn’t require lender approval.
- Rent the property
This is for homeowners who have mortgage payments low enough that a rental payment allows the loan to be paid. However, with rental properties, a lot of expenses, taxes, insurance and landlord responsibilities are a factor, and rental income may not cover the full cost of ownership and maintenance. If this may be a solution for you, you will be able keep the property indefinitely while living somewhere else.
- Loan modification
If you are able to 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 take in your delinquent payments and make the next 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.
- Refinance
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 avail 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.
- Payment plan (also, “forbearance”)
A forbearance agreement means you only pay part 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.
- Bankruptcy
In some situations and in some states bankruptcy delays the foreclosure process (around six months) and may allow you to live in your home and repay your lender under different terms. If a homeowner has significant non-mortgage debts that prohibit you from making your mortgage payment — and a personal bankruptcy will eliminate these debts — bankruptcy may be an option. The problem is, most people that go through bankruptcy have not solved their problem. If you cannot afford your home, you may end up in foreclosure again within a short time. Bankruptcy is expensive, damages your credit and can only be declared once every seven years.
Solutions If You Cannot Keep Your Home
- Short sale
If you owe more on your home than what it is worth, and don’t want to declare bankruptcy, you can hire a short sale real estate specialist to market the home and negotiate a short sale agreement with your lender or mortgage provider. A short sale allows you to avoid foreclosure and cut down 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.
- Deed-in-lieu of foreclosure (also, “friendly foreclosure”)
Deed-in-lieu of foreclosure means you have 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 is not 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. By transferring the deed voluntarily, you will save your lender tens-of-thousands of dollars in foreclosure proceedings. Fannie Mae has reduced the mandatory waiting period to establish credit history to a minimum of 4 years. This waiting period after a deed-in-lieu of foreclosure is lower than the required 5-7 years following a foreclosure. Although a deed-in-lieu may have less impact than an actual foreclosure on your ability to establish homeownership in the future, if you are going to cooperate with your lender and take a proactive approach, a short sale is generally the better option.
As a Santa Monica Real Estate Short Sale Specialist, I can help you make sense out of your options. I’m here to help. Call me, email me, or visit my website today.
