December 13, 2011 — Foreclosure has always been a dirty word, but with the recent financial crisis the word quickly became a part of everyone’s vocabulary. Practically everyone knows of someone, whether it’s a friend, family member or neighbor, who has had to deal with the possibility or reality of foreclosure.
However, occasionally homeowners may face events beyond their control that can make it difficult to maintain mortgage payments, even in the best economies. This can be a stressful experience and most mortgage companies are willing to help homeowners save their home.
Listed below are a few of the alternatives that may be able to help you avoid foreclosure. Your mortgage representative will advise you the options are available to you and help you concentrate on those. Please note, however, that the default process usually continues until one of these alternatives is approved, and may continue until the foreclosure sale.
A forbearance plan allows you to make regular full payments plus a portion of the delinquency each month over a period of time. To qualify, you typically must furnish financial information indicating that you are able to support the new repayment amount.
This option is used when you have experienced a permanent reduction in income or an increase in expenses which was beyond your control. It should be emphasized this is done only in hardship situations and is not available as an alternative to standard refinancing. In some circumstances, it may be possible to capitalize (add into the unpaid principal balance) some or all the past due payments and/or extend the original maturity date.
Partial Claim (for FHA loans only)
If you have a FHA loan, you may qualify for a partial claim, which is a workout program where HUD loans your mortgage lender funds to bring the mortgage current. The customer must execute a promissory note and a lien will be placed on their property until the promissory note is paid in full. The promissory note will be due if the property is sold or the mortgage matures.
Pre-foreclosure Sale (also called a presale or short sale)
Selling your home is one solution when you are having long-term difficulty making your payments. Unfortunately, property values can decline causing you to pay the difference between the proceeds and what is owed on the loan. However, the investor and insurer may accept less than the total amount owed rather than completing a foreclosure.
Deed in Lieu of Foreclosure (DIL)
If all available options have failed, a DIL is the final alternative. Although you transfer the title of your home to the investor, there are advantages over foreclosure. First, the investor and insurer waive any right to a deficiency judgement against you if they suffer a loss reselling the property. Second, you won’t have a completed foreclosure on your record, increasing your opportunity to purchase a home in the future. Generally the investor and insurer will consider a DIL if the default was beyond your control and you have been cooperative in seeking alternatives. You must first have tried to sell the property for 90 days at fair market value.
The last step
Foreclosure is the last step your mortgage company wants for your home, and they will most likely do everything possible to avoid it. If you are experiencing difficulty making your mortgage payments, the best step you can make is to call your mortgage representative now.