Scoll Down to request your FREE Reports.Foreclosure occurs when the homeowner falls behind in monthly mortgage payments and defaults on the loan. The lender repossesses or sells the home in order to satisfy the debt. Typical options you can pursue to avoid a home foreclosure are set out below. Your solution will depend on your financial status, the mortgage's default status, the type of loan you have and the various laws that apply. Reinstatement Prior to a foreclosure sale, borrowers have the right to reinstate a delinquent loan. The reinstatement option gives homeowners the opportunity to make up back payments plus any incidental charges incurred by the bank such as filing fees, trustee fees and legal expenses. Paying off the reinstatement amount will cancel the foreclosure and enable the homeowner to continue to live in the home as if no default occurred. For many delinquent borrowers, however, reinstatement is not an option because they are deep in debt and cannot make up back payments, plus other expenses. Short Sale A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. Short Refinance In a short refinance, the lender may agree to forgive some part of your debt and refinance the remaining debt into an entirely new loan. Special Forbearance. A forbearance is an agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments. A forbearance agreement is not a long-term solution for delinquent borrowers; it is designed for borrowers who have temporary financial problems caused by unforeseen problems such as temporary unemployment or health problems. Borrowers with more fundamental financial problems - such as having chosen an< adjustable rate mortgage on which the interest rate has reset to a level that makes the monthly payments unaffordable - must usually seek remedies other than a forbearance agreement. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan. Mortgage Modification. A mortgage modification is a modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default. A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan. You may qualify if you have recovered from a financial problem and can afford the new payment amount. Most lenders can work with home owners even if they have poor credit and have a foreclosure date. Chances to obtain a loan to regain a current status on your mortgage become diminished once you have received a notice of default (NOD). Notice of Default is usually sent after 90 days of the mortgage payment being late. Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHAInsurance fund to bring your mortgage current. You may qualify if: - your loan is at least 4 months delinquent but no more than 12 months delinquent;
- you are able to begin making full mortgage payments.
When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property.
Pre-foreclosure sale. For owners who don’t care to save the property, or who have no other choice than to let the property go, selling the property may be a smart choice. If you have enough equity in the house to allow you to pay off the mortgage in full, then a sale is usually your best option. This option preserves your equity and what’s left of your credit score. Selling also leaves you in a much better financial position should you want to buy another home in the future. Deed-in-lieu of foreclosure. A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith. A deed in lieu of foreclosure has advantages for both a borrower and a lender; mainly the avoidance of time consuming and costly foreclosure proceedings. In addition, the borrower avoids some public notoriety, and may even be able to lease the property back from the lender. The homeowner needs to assess certain risks which include, among other things, the risk that the property is not worth more than the remaining balance on the mortgage and that junior creditors might hold liens on the property. This won't save your house, but it is not as damaging to your credit rating as a
foreclosure. You may qualify if: - you are in default and don't qualify for any of the other options
- your attempts at selling the house before foreclosure were unsuccessful; and
- you don't have another FHA mortgage in default.
Bankruptcy A Chapter 13 bankruptcy filing can stall or derail foreclosure proceedings. That's because of bankruptcy's "automatic stay" provisions that force creditors to the sidelines while the bankruptcy court sorts things out. The lender can petition the court to allow it to continue with the foreclosure, depending on where you are in the foreclosure process, but it should buy you some time. If there is no equity in the house (today's value less costs of sale less payoff balances on all liens) the trustee in a Chapter 7 may abandon the house to you. That is, you keep it, as long as you pay the mortgage. A bankruptcy does not relieve the property of the liability for voluntary liens, like mortgages or deeds of trust, nor for tax liens. So, the lender retains the right to foreclose if you don't pay. |