Homeowners who are no longer able to pay their mortgage, or who are already faced with notice of default (NOD) leading to foreclosure, should be aware of the various options that are open to them. Awareness of these options will hopefully lead to a more informed decision and form expectations accordingly.

1. Repayment Plan
When you fall behind on payments, your bank’s collection department will call to demand that you get caught up with the payments. They will generally offer you to 12 months to repay your past due amount, thereby increasing your regular monthly payment for the next 12 months, or until you get caught up. If your financial hardship is temporary, this may be the right option for you. The disadvantage of a repayment plan is the terms of your loan remain the same. If your interest rate is high, you will continue to pay your mortgage based on this high rate.

2. Forbearance
Your bank or loan servicer might agree to reduce or suspend payments for a few months, usually up to 6 months, until you get back on your feet financially. After this period, you will be expected to bring your loan current. A forbearance option is often followed by a repayment plan where you are expected to make extra payments each month until your loan is current. Forbearance is commonly offered to disaster victims and people who have lost their jobs but who expect to be employed in the near future.

3. Loan Modification
This is the most common option for homeowners who are in hardship but would like to be able to keep their home. A loan modification is similar to a refinance (except that most borrowers cannot refinance either because there is no equity on their home and/or their credit standing will likely result in their loan application being disapproved). This option involves changing the original terms of the loan such as:

• reduce interest rate.
• change the loan from an adjustable to a fixed-rate mortgage.
• add past due amounts to the loan balance.
• extend your loan for a longer period of time, thereby increasing the number of payments to pay off the loan.
• rarely, reduce your principal balance.

4. Deed-in-Lieu of Foreclosure
The borrower offers to hand over the deed to the property back to the lender - this is often referred to as “deed in lieu.” This will not save the house, but it is less damaging to your credit rating than foreclosure. Although this option might be the easiest way out, there may be limitations for acceptance by the lender:

• The homeowner should have tried to sell the property at fair market value for at least 90 days before the lender considers this option.
• This option may not be available if you have other liens (e.g., creditor judgments, second mortgages, IRS or state tax liens) on the property.
• The property must be owner-occupied.

Most lenders prefer to go with either a short sale or a foreclosure.

5. Short Sale
This may be the most suitable option if other alternatives such as repayment plans, loan modifications, forbearance, are unlikely to succeed because of the homeowner’s financial situation and/or no desire by the homeowner to keep their home. In a short sale, you sell the house for less than you owe, subject to the lender’s approval.

The advantage of a short sale over a foreclosure is that you avoid having a foreclosure on your credit file for up to 10 years.

6. Foreclosure
With a foreclosure, the lender takes possession of the house, evicts the tenants, and puts the property up for sale.

If you need help with a short sale or finding the most appropriate option for you, call us. We can help.

CALL TOLL-FREE 800-474-0341.