What are your options when you’re facing default, foreclosure, or simply cannot make your mortgage payments anymore?
Below are your options to consider: If you are unable to get your lender to work with you on Options 1 - 4 and you don't have time to sell your home because of late payments, the SHORT SALE option truly is your best solution.
1. Forbearance
Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements. Both loan modifications and special forbearance agreements are legal contracts so be sure you can meet the revised obligation or you can put yourself in jeopardy of renewed mortgage default proceedings.
2. Refinance
If your credit is not too badly damaged and loan to value ratios on your property are low enough, you might qualify to refinance your current mortgage loans. Recent tightened restrictions on home loan refinance programs have caused increased difficulties for mortgagors. With this option, there should be equity in the home.
3. Reinstatement
A lump sum payment by remitting the entire default amount plus interest, attorney fees, late fees and taxes. You can request an updated statement of total amount due to bring the loan current by contacting your lender.
4. Loan Modification
Utilizing the existing mortgage company to change the interest rate, add missed payments to the balance or extend the terms of the loan. This option can be successful for homeowners who are just recently back on financial track due to say, re-employment. The lender will require a substantial down payment toward the total arrearage and then divide the remaining balance over 12 to 18 months. These payments will be required in addition to the original payments on the note.
5. Sell your home
A Homeowner may sell their home without lender approval as a conventional home sale. If the property has equity (money) left over after all loans and monetary encumbrances are paid), the homeowner will get cash from the sale. At the other end of the spectrum, a short sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your real estate professional if what is owed on your home is more than the property’s value.
6. Deed in Lieu of Foreclosure
If you owe more than the home is worth, this is not an option for you. Deed in Lieu is when you give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payments and taxes must be current. Your lender will fully analyze whether your current title is burdened by subsequent interests. In other words, is the title clean? If not, a formal foreclosure will extinguish those other encumbrances and the lender may see this as their best option.
7. Short Sale
Short selling your home may be your only hope. It is often a difficult and long process. If you are successful, the difference between what you sell the house for and what you owe on the house is forgiven. If you owe more than your home is worth, and don’t want to declare bankruptcy or face foreclosure, then a short sale of your home is the best option. A short sale does have potential tax implications.
8. Bankruptcy
This option can liquidate debt and/or allow more time. Bankruptcy law changes of 2005 now require more stringent filing rules. Debtors must qualify by meeting an “income means test” and complete pre and post petition trustee approved credit and financial counseling courses. Certain debts such as student loans and some taxes cannot be liquidated. Chapter 7 (Liquidation) Complete settlement of personal debt Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3 – 5 years.
9. Foreclosure
If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Most homeowners prefer to preserve their personal integrity by attempting some form of resolution.