Alternatives to Foreclosure
ALTERNATIVES TO FORECLOSURE
If you are a homeowner under the threat of foreclosure, you may feel there has been a serious challenge to your dignity and that your family is under threat. You are not alone; this challenge facing the housing market has not been experienced by American homeowners since the Great Depression. There is no shame in being in your position; literally millions of American homeowners are finding themselves in similar circumstances.
You should realize you may not need to sell your home; a Short Sale is only one of the many options available to you in the process of foreclosure prevention. However, a Short Sale may likely be the best option available to many homeowners under the threat of foreclosure. The best advice we can give you when you have problems making your monthly mortgage payments is to be proactive and act swiftly in your decision. Time is of the essence and every minute that goes by diminishes your options significantly.
There is a variety of options available to distressed homeowners facing foreclosure:
1. Do Nothing
It's the worst thing a distressed homeowner can do! They Will lose their home. Foreclosure will irreparably damage a homeowner's credit score for a number of years! Foreclosure is worse than bankruptcy in terms of detrimentally affecting a consumer's credit standing. When applying for credit, loan originators ask if the applicant has ever been through foreclosure. Be upfront and don't be misleading under any circumstances, the foreclosure will be on your credit report and a report will be pulled.
2. Retire the Debt
Pay-off the entire loan including:
All late fees; Accrued Interest; Legal fees and costs; all delinquent payments; A pre-payment penalty may also apply.
Retiring the debt is generally not an option, otherwise the homeowner would not be in distress to begin with; or if your financial circumstances have changed for the better in acquiring sufficient funds to completely pay-off the debt, this may be a viable option.
3. Refinance
This option generally requires significant equity in the property. Refinancing will rectify the default, If this is a viable option for the 1% who qualify - 99% of distressed homeowners who've received a Notice of Default will not qualify for refinancing. Should they be fortunate enough to be one of the lucky 1%, a higher interest rate will apply and chances are the new monthly payment will be higher than previously...If the homeowner qualifies!
4. Full Loan Reinstatement
Completely paying the entire delinquency, including:
All late fees; accrued interest; legal fees and costs; delinquent mortgage payments; late property taxes
5. Forbearance
A negotiated payment relief plan. The default homeowner will undergo a stringent qualification process and approval will depend on their financial situation. Forbearance options may include:
Temporary reduction in monthly payments; limited suspension of payments
Once the period of forebearance concludes successfully, the loan will be reinstated. The homeowner must prove they have the financial resources to resume regular monthly mortgage payments and demonstrate the reason for default has been cured.
6. Loan Modification
Essentially, the existing mortgage lender reorganizes the debt structure and/or extends the term of the loan. However, only a small percentage of default homeowners qualify for a loan modification. Given that loan modification generally follows and may be the end result of forebearance there is a stringent qualification process and many default homeowners may not qualify for a Loan Modification.
7. Partial Claim (FHA Only)
A workout option whereby FHA/HUD pays the delinquent amount for up to 12 months of PITI payments. The homeowner must be at least 4 months delinquent before a partial claim can be negotiated.
8. Deed-in-Lieu
The property is surrendered to the lender in lieu of foreclosure, thus the name Deed in Lieu. Generally it's a "last resort" option for the lender to authorize a deed in lieu... the lender does not want the property, their financial losses escalate once the property reverts to bank ownership as an REO. The property must be in good condition and well maintained. Proof is also required that the homeowner cannot afford the payments and there is a verifiable hardship. A deed in lieu will not be acceptable if there are junior or any additional liens.
9. Bankruptcy
This should be a homeowner's last resort option. Under bankruptcy protection the distressed homeowner will be a "financial leper" for up to 7 years. There are several Bankruptcy options under the United States Bankruptcy Code.
10. Sell the Property/Short Sale
If you owe more on your home than what it is worth it is probably going to be pretty hard to sell your home property and cover your payoff,closing costs, and commissions. With a Short Sale your lender will accept a short payoff and release you from your mortgage obligation. A short sale can provide a great outcome to a bad situation.
