Options for Homeowners Facing Foreclosure
The following are strategies a homeowner can use to avoid foreclosure. Not every solution works for every homeowner, but there is most likely one that can work for you if you are willing to invest the time and effort necessary for success.
If the reason you missed payments was temporary and it has been resolved, then you have the option to reinstate your mortgage right up until the bank sale.
In order to reinstate a mortgage, you must pay all missed payments, late fees, and legal fees that are due up until the date that the loan is reinstated. You request this amount from the mortgage company in the form of a reinstatement letter. This letter 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 this payment, the mortgage is reinstated and you are free to make payments as you have before.
Forbearance or Re-Payment Plan
If the issue that caused you to miss payments was temporary but you are unable to make a onetime reinstatement payment, you may be able to negotiate a forbearance or repayment plan.
If you do not have the means to repay all of the missed payments and legal fees, then this is another option that also reinstates the mortgage. The lender allows you to pay the missed amount over a period of time or they place the missed payments at the end of the amortization of the loan. It is much more likely that you will be given a period of time in which to pay delinquencies.
This option usually requires income documentation from you showing that you are unable to comply with terms of a repayment plan. Typically, a mortgage is not fully reinstated through a forbearance plan until all payments are made in full. If you miss just one payment, you can end up right back in the same stage of the foreclosure process that you were facing when the forbearance agreement was created.
Sell the Property
If you have equity in your house, you can sell it and cure the foreclosure. Unfortunately, many sellers believe that they have to sell much faster than actually have to and they end up taking the first offer that comes along.
If you are working with a licensed agent, he can help you harvest from the home sale as much of your hard-earned equity as possible. However, you need to make sure your agent understands the foreclosure process, is aware of the foreclosure timeline in your unique situation, and he prices and markets your property accordingly.
Many homeowners think they have equity in their home only to find that it will be wiped out by a prepayment penalty or a secondary lien on the property. Once again, a qualified real estate professional can help you navigate through a sale as quickly and profitably as possible.
Rent the Property
In rare cases, you may have mortgage payments low enough to allow you to rent your property and keep up your mortgage payments. Usually this is just a short-term solution.
It is difficult to keep good tenants in a rental property if you don’t have the capital necessary to handle repairs and general maintenance. That doesn’t even take into consideration what you would do to keep afloat if there is a vacancy. Additionally, if your taxes and insurance are not escrowed into your loan, they become a huge burden when they come due.
If you have sufficient equity and income and your credit has not been too badly damaged, you may be able to refinance. This is also typically a short-term solution since payments on the property usually go up considerably due to the refinance. If the issue that made you late on your payments in first place has been resolved then this option will sometimes work. But in many cases, this is just a foreclosure waiting to happen.
In some cases where you do have the means to afford your mortgage payments or very close to your mortgage payments, the bank may qualify you for a mortgage modification. This is very 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 in proof of income and expenses. If this option is available, it offers a great opportunity to keep your home.
This relatively new phenomenon shows 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 interest rate as well. You will have to apply for this process both in showing a hardship as well as demonstrating the ability to pay the new mortgage through a fully documented qualification process. Unfortunately, lenders have been reluctant to offer this program in places like Tennessee that have not been ravaged by foreclosure like some other areas of the country.
Deed-in-Lieu of Foreclosure
This option is sometimes referred to as a “friendly foreclosure” since you essentially give the deed to your property back to the bank. This action may prevent the lender from having to go through a lengthy foreclosure process; in exchange the bank will sometimes forego its rights to a deficiency judgment. The mortgage company agrees to take the deed back in exchange for the property and it typically has no further recourse.
This solution only works in cases where there is one mortgage and there are no liens (or very small liens) on the property or in rare cases where the first mortgage holder is willing to negotiate with junior mortgage holders. This happens infrequently and was previously unheard of before the current mortgage crisis.
If you have equity in your house, this is not a good option since you will give up any right to the property and any equity when using Deed-in-Lieu as a solution.
A bankruptcy may stop a foreclosure and allow you to reorganize your debts and keep your property. The reality however, is that most of the time this is not the case and the bankruptcy only stalls the foreclosure. If you are unable to make payments after bankruptcy, the house will foreclose anyway.
The other major drawback to bankruptcy is that it makes it very difficult for you to sell your property once you enter the process. And it makes it nearly 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.
Servicemembers Civil Relief Act (SCRA)
Signed into law on December 19, 2003, the SCRA provides certain protection to military personnel that are in foreclosure in specific situations. The law also provides Servicemembers other protections
As it applies to mortgages, the law reads:
Mortgages: The SCRA can also provide temporary relief from paying your mortgage. To obtain relief, a military member must show that their mortgage was entered into prior to beginning active duty, that the property was owned prior to entry into military service, that the property is still owned by the military member, and that military service materially affects the member’s ability to pay the mortgage.
It is important to note that this relief is only temporary and in many cases the most prudent course of action is to sell you property. However, this is a personal decision based on your specific financial situation.
When you owe more on a property than it is currently worth and one of the above solutions do not apply to your situation, you have the option of pursuing a short sale.
You are “short” when you owe an amount on your property that when combined with closing costs and commissions is higher than the current market value.
A “short sale” occurs when a negotiation is entered into with your mortgage company or companies to accept less than the full balance of the loan at closing. A buyer closes on the property and the property is ‘sold short.’
In the past it was rare that a bank would accept a short sale. However, due to overwhelming market changes, lenders have become much more negotiable when it comes to these transactions. Recent changes in policy within many organizations have made the chances of getting a short sale approved even higher.
Even with banks more open to entering into the process, you will need the help of a real estate professional who is patient, organized, a good communicator, and highly knowledgeable in this area in order to complete a successful short sale.
Regardless of what some opportunists in the marketplace have been saying, a short sale is not a “get out of my mortgage free” card. If someone suggests otherwise, the next step will likely be to send “get creative” (read: lie) with the financial information you send to your lender. This is also known as mortgage fraud. The bottom line is that a bank will only approve a short sale for someone who is already in or obviously headed for foreclosure. This means that you must have a valid financial hardship for why you can’t pay your mortgage. If you have the means to maintain your mortgage or bring cash to closing, the bank does not consider you to have a valid financial hardship and therefore will most likely not approve a short sale for you.
If you are in the Murfreesboro TN or Rutherford County area and are facing foreclosure call our toll free 24 hour info line for FREE recorded information 1-800-239-2513 ext. 2044, visit www.TheHomeSaverGuys.com, or simply email us at John@JohnCJones.com