Options for Homeowners Facing Foreclosure
Reinstatement
Bring the loan current. Usually applies if the reason for missed payments is temporary and has been resolved. The homeowner pays all missed payments, late fees, and legal fees, in full, up to the date that the loan is reinstated. The homeowner requests the amount required from their mortgage company in the form of a reinstatement letter. The reinstatement is time sensitive and generally expires within 30 days.
Forebearance
Temporary repayment plan. If the homeowner can not make a onetime reinstatement payment they may be able to negotiate a forebearance or repayment plan. The lender allows the buyer 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. More than likely the homeowner will be given a finite period of time in which to pay the delinquencies.
Refinance
New loan with reduction in monthly payments. If the homeowner has sufficient equity and their credit hasn’t been damaged too badly it may be possible to refinance the existing mortgage. Only drawback is that refinancing may increase the mortgage payments or call for a down payment or closing costs the homeowner can’t afford.
Mortgage Modification
Modify the original loan terms. If the homeowner is currently making, or is close to making their mortgage payments, they may qualify for a lower interest rate on their existing mortgage. The homeowner will have to prove income and expenses.
Sell the Property
Use equity to payoff or pay the difference. If the homeowner has equity in their property they can sell it and cure the foreclosure. It is important to clearly understand the foreclosure timeline and accurately account for all liens against the property.
Rent the Property
Must make the loan current. If payments are low enough it may be possible to rent the property and make the payments. Some caution is needed to make sure the tax and insurance payments can be made as well or the homeowner could end up facing the same financial problems as before.
Deed-in-Lieu of Foreclosure
Friendly foreclosure. This is sometimes referred to as a friendly foreclosure since the homeowner essentially gives the deed back to the lender. The lender typically waives any rights to deficiency judgment. This usually works best if there is only one mortgage and no other liens against the property. This is not a good option is the homeowner has equity in the property as they forfeit that equity in exchange for the deed.
Deed for Lease™
Fannie Mae is implementing a Deed for Lease™ Program where qualifying homeowners facing foreclosure will be able to remain in their homes by giving the lender a deed in lieu of foreclosure and then lease the home from the lender at a market rate. More...
Bankruptcy
May stall foreclosure but not prevent it. Declaring bankruptcy may stop a foreclosure and allow the homeowner to reorganize debt and keep the property. However, many times a bankruptcy only stalls a foreclosure. Often a property can not be sold during a bankruptcy proceeding. So careful consultation with the bankruptcy trustee and the CDPE© is advised.
Servicemembers Civil Relief Act (SCRA)
For active duty servicemembers. SCRA is a law that allows service members certain protections. In the case of a mortgage, the military member must have purchased the property prior to entering active duty, that the property was owned prior to entry into active duty, that the property is still owned by the military member, and that military service materially affects the member’s ability to pay the mortgage.
Short Sale
Negotiate with the bank to accept a sale price under what is owed. Simply defined as the homeowner owes more than the property is currently worth and one of the other options does not apply.
(Certified Distressed Property Institute, LLC 2009)
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