The current US housing market and national financial crisis has caused untold stress and heartache for many American families.  Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided.  The options for foreclosure are many; the following is a brief explanation of the solutions.

• REINSTATEMENT

A reinstatement is the simplest solution for a foreclosure.  However, it is often the most difficult.  The homeowner simply requests the total amount owed to the mortgage company to date and pays it.  This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.

PLUS:  Does not require mortgage company or lender’s approval.

MINUS:  Requires that a homeowner be able to pay all back payments, fines, and fees immediately.

• FORBEARANCE OR REPAYMENT PLAN

A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time.  The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

PLUS:  Allows the homeowner to make back payments over time.

MINUS:  Requires that a homeowner be in a financial position to pay not only their current mortgage, but a portion of the back payments owed.  Some mortgage companies will require a homeowner to ‘qualify’ for forbearance.

• MORTGAGE MODIFICATION

A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or all or any of the above.  This typically results in a lower payment to the homeowner and a more affordable mortgage.

PLUS:  Reduces the payment a homeowner is required ot make on a monthly basis and may reduce the principal balance of the loan.

MINUS:  Requires that a homeowner ‘qualify’ for the new payment and will often require full documentation.  Lender has to be actively pursuing modifications.

• RENT THE PROPERTY

A homeowner, who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental, and use the rental income to pay the mortgage.

PLUS:  Allows the homeowner to keep the property indefinitely.

MINUS:  The issues that can arise with a rental property are many, and rent often does not cover the full cost of the property ownership and maintenance.

• DEED IN LIEU OF FORECLOSURE

Also known as a ‘friendly foreclosure,’ a deed in lieu allows the homeowner to return the property to the lender, rather than go through the foreclosure process.  Deed In Lieu requires lender approval and requires the homeowner to vacate the property.  Deed In Lieu can only be done on single loan properties most of the time.  If you have a second loan, you are stuck.

PLUS: Many times in a successful Deed In Lieu, the lender will forego their right to file a deficiency judgement.

MINUS:  Requires that a homeowner vacate their property and the home may be reported to credit bureau agencies as a foreclosure. Not compatible on properties with second loans.

• BANKRUPTCY

Bankruptcy has been marketed by many as a ‘foreclosure solution,’ which in somes states and situations, can be.  However, if a homeowner has non-mortgage debts, whose payments are causing them to stop making their mortgage payments, then a personal bankruptcy may be a viable solution to eliminate the debts.

PLUS:  Does not require lender approval.

MINUS:  If a homeowner cannot afford their mortgage payment, a personal bankruptcy will only stall, but not stop the foreclosure process.  Bankruptcy can be costly.

• REFINANCE

If a homeowner has sufficient equity in their property and their credit is in good standing, they may be able to refinance their mortgage.

PLUS:  In some cases, will lower the payments.

MINUS:  In today’s market, a refinance will almost always raise a mortgage payment.  It is an expensive process.

• SERVICEMEMBERS RELIEF ACT (MILITARY PERSONNEL ONLY)

If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, then they may qualify under the Servicemembers Civil Relief Act.  The American Bar Association has a network of attorneys that will work with service members in relation to qualifying for this relief.

PLUS:  If qualified, it will lower payments on all consumer debt in addition to mortgage payments.

MINUS: Must be active military to quailify.

• SELL THE PROPERTY

If a homeowner has sufficient equity in their property , they can list their property for sale with a qualified real estate agent, who understands the foreclosure process in their area.

PLUS: Allows the homeowner to avoid foreclosure and harvest some of their equity.

MINUS: In many cases today, homeowners do not have sufficient equity to sell their property without negotiating a short sale (see next solution).

• SHORT SALE

If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender.  This typically requires the property to be on the market.  In addition, the homeowner must have a financial hardship to qualify.  Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation.  Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, etc.

PLUS: Allows the homeowner to avoid foreclosure and salvage some of their credit rating,  and can keep a foreclosure off the public record for an indiviual.  In many cases, this will allow a homeowner to avoid a deficiency judgement.  The borrrower may qualify for another mortgage in as little as 24 months (vs. 5 years for foreclosure).

MINUS:  Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.

This information represents only a summary of some of the solutions available to homeowners facing the prospect of a foreclosure.  Please call us today for a free evaluation of your situation and your options to avoid losing your home. Call us today at (561) 340-2675.