Options for Homeowners in Foreclosure
Foreclosure does not have to be your only option if you are behind in your mortgage, lost your job or facing distress in your homeownership situation. Below is a list of options to consider when facing foreclosure and what these options mean:
1. Reinstatement: If the reason you missed payments was temporary and it has been resolved then you have the option to reinstate your mortgage right up to the bank sale. In order to reinstate your mortgage, you have to pay all missed payments, late fees, and legal feeds that are due up to the date that the loan is reinstated. You need to request this amount from your lender in the form of a reinstatement letter. this loetter will typically expire after 30 days since the amount owed is time sensitive. A simple reinstatement will require a onetime payment of all delinquent funds in full. Once you make that payment, the morgage is reinstated and you are free to make payments as you did before.
2. Forebearance or Re-Payment Plan: If the issue that caused you to miss payments was temporary and you are not able to make a onetime reninstatement payment, you may be able to negotiate a forebearance or repayment plan. If you do not have the means to repay al of the missed payments and legal fees, then this is another option that also reinstates your mortgage. The lender will allow you to pay the missed amount over a period of time or they place the missed payments on the end of the amoritization of the loan. Most likely, the lender will give you a given period of time to pay delinquencisies. This usually requires income documentation from you showing that you will be able to comply with the terms of the repayment plan. Here's the catch....Typically, a mortgage is not fully reinstated through a forbearance paln until all the payments are made in full. If you miss just one payment, you can end up in the same stage of the foreclosure processw your were in previously.
3. Sell the Property:If you have equity in hyour property, hyou can sell it and cure the foreclosure. Unfortunately, many sellers believe that they have to sell much faster than you actually do and therefore end up taking the first offer that comes along. Work with a licensed realtor that has knowledge of distressed properties and be sure to be upfront with them and let the realtor know the foreclosure timeline you are in so they can price the home accordingly. If you think you have equity make certain you still order a pay off from the lender and title/lien serach. It is very possible that you have a prepayment penalty on the payoff or a lien on the property which could eliminate any equity you might have.
4. Rent the Property: If your payments are in line with market trends, you may be able to rent the property and keep up your payments. Make sure your taxes and insurance payments are included in the rent payment or when those bills come due, you may not have the finances to pay them.
5. Refinance: If you have sufficient equity and income and your credit has not been too badly damaged, you may be able to refinance. This is typically a short term solution. Your payments will probably go up considerably due to the refinance. If the issue that made you late in the first place is not resolved, then this is just a bandaid!
6. Mortgage Modification: In some xcases when you have the means to afford your mortgage payments or very close to your mortgage payments, the mortgage company may qualify you for a mortgage modification (Loan Modification). A loan modification is similar to a lower interest refinance where the lender lowers the interest rate on the existing loan in order to lower the payments. You will have to qualify for a modification by sending proof of income and expenses. If this option is available to you, this is an excellent option to keep your property.
7. Short Refi: This is a relatively new phenonomenon and shows you just how far some mortgage companies and lenders are going to avoid foreclosing on properties. this process involves the refinance of a home with a reduction in the principal balance and often the interst rate as well. You will have to qualify by showing a hardship as well as showing the ability to pay the new mortgage often thru a fully documented qualification process.
8. Deed in Lieu of Foreclosure: This is sometimes called a "friendly foreclosure" since the you essentially give the deed back to the bank. This may prevent the banks from having to go thru the lengthy foreclosure process and in exchange they will sometimes forego their rights to a deficiency judgement. The mortgage company agrees to take the deed back in exchange for the proeprty and they typically have no further recourse. This solution only works in cases where there is one mortgage and there are no liens on the property or in rare cases the first mortgage holder will negotiate with the second mortgage hlder. If you have equity this is not a good option since you give up any right to the property and any equity when using Deed-in-Lieu as a solution.
9. Bankruptcy: A bankruptcy may stop a foreclsoure and allow you to reorganize your debt and keep your property. The realty however is that this is only a "stall" to foreclosure. The other major drawback is that when you are in bankruptcy, it makes it very difficult to sell your house once you enter this process. It makes it near impossible to negotiate a short sale. The only possibility is if the trustee for the bankruptcy agrees to release the property from the proceedings and allow it to be sold.
10. Servicemembers Civil Relief Act (SCRA): The SCRA is a bill that was signed into law (Public Law 108-189) on December 19, 2003. This law provides certain protection to military personnel that are in foreclosure in specific situations, the law also provides Service members other protection. NOTE:This relief is only temporary and in many cases the most prudent course of action for a service member is to sell the property. This is a personal decision based on your specific financial situation (see: http://www.uscg.mil/legal/la/topics/sscra/about_the_sscra.htm )
11. Short Sale: If you owe more on your property than it is currently worth and one of the above solutions do not apply to your situation, there is the option of pursuing a short sale. This is a very detailed process with specific qualifications. Be sure to use a realtor that specializes in distressed properties.
For more information about the options to foreclosure or for a FREE private consultation, contact Carol Daniels, Certified Distressed Property Expert, at Creative Choice Realty.
