There are many options available to local residents facing foreclosure. The type of mortgage loan you have may determine what types of alternatives you may be eligible to pursue in order to avoid foreclosure. Keep in mind that it is important to contact your lender to discuss which alternatives you are eligible for, and which one is best for your situation.
Bring Your Payments Current (reinstatement)
Homeowners can reinstate a mortgage up to the day before a final foreclosure sale, and it doesn’t require lender approval. You may also pay your lender the full amount due, including all back payments, fines and fees.
Rent The Property
Renting the property is an option for homeowners who have mortgage payments low enough that a rental payment allows the loan to be paid. However, keep in mind that with rental properties, many expenses, taxes, insurance and landlord responsibilities are a factor, and rental income may not cover the full cost of ownership and maintenance.
If you can make payments on your loan, but don’t have enough money to bring your account current, your lender may change the terms of your original loan to absorb your delinquent payments and make the payments more affordable. Your loan could also be permanently changed by adding the missed payments to the back end of the existing loan balance, lower the interest rate, make an adjustable rate fixed, or extend the number of years you have to repay your loan.
If you have enough equity in your home and your credit is still in good standing, you may be able to refinance an unaffordable loan and achieve lower payments.
Payment Plan (forbearance)
A forbearance agreement means you pay only a portion of your regular payment or no payment at all for a specific period of time based on your current financial situation. This temporary solution provides time to save money, pay off other bills, find employment or additional employment, or recover from injury or illness. At the end of the forbearance period, you begin making regular payments as well as an additional amount to pay off the past due amount.
In some situations and in some states bankruptcy stalls the foreclosure process and may allow you to live in your home and repay your lender under different terms.
HUD Partial Claim
If your loan is an FHA insured loan, your lender may be able to obtain a one time payment from the FHA Insurance Fund to bring your mortgage loan current with payments.
With so many consumers evaluating their options, it is important to understand the difference between a short sale and a foreclosure, and how each option may impact your credit scores. So, what is the difference between a short sale and foreclosure? A short sale occurs when the lender agrees to accept less than the total amount owed on the mortgage loan. A foreclosure is the legal termination of all rights of the borrower as the owner of the home and the lender repossesses the home. In a foreclosure, the estate becomes the absolute property of the lending institution.
The perception that a short sale will always have less impact on a credit score compared to a foreclosure is simply a credit score myth. If a foreclosure or short sale appears on your credit report it is considered negative because it predicts future credit risk. Generally speaking, the impact on your credit score will be similar for both a foreclosure and a short sale.
The exact score impact of a foreclosure or a short sale will depend on several factors including:
.Additional information reported on the mortgage account, included in a foreclosure or short sale. For example, late payments associated with the mortgage account prior to the foreclosure or short sale and how recently those past due payments took place.
.Current credit profile of the consumer. For example, how the consumer is managing all their other credit obligations such as credit cards, car loans, student loan, etc. Are other bills being paid on time or have missed payments been reported on these as well? And are credit cards showing high balances?
.The negative impact on a credit score appears more severe if a foreclosure or short sale is reported on a credit report that has little or no history of missed payments and or derogatory information. In these scenarios, the number of points lost can be 150 or greater.
The best way to avoid foreclosure is to prevent the filing of a Notice of Default. Lenders do not want to foreclose but will file a Notice of Default to protect their interests, if necessary. If you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender.
Do not ignore letters from your lender because those responses will make the situation worse, not better. Depending on your particular situation and hardship circumstances, here are some options your lender might propose to you:
Time To Catch Up Your Payments:
Lenders might agree on forbearance. The lender will wait before taking legal action against you and let you work out a repayment plan that is affordable for you.
Forgiving A Payment:
Debt forgiveness is rare. It involves agreeing that you will be current after missing a payment and the lender waiving your obligation.
Spread Out The Missed Payments Over A Longer Term:
A repayment plan allows you to pay your missed payment over a few months to a year. For example, if your payment is $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up.
Changing The Terms Of Your Loan:
If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable.
Add The Back Payments To Your Loan Balance:
If you have sufficient equity and meet the lender’s lending guidelines you might be able to refinance. Here the lender might increase your loan balance to include the back payments and re-amortize the loan.
Make A Separate Loan To You:
During a partial claim borrowers who meet specific criteria can apply for another loan, which will pay back the missed payments.
Foreclosure can happen to anybody in any financial income bracket. Also, it is not something that you should hide from because it never goes away.
There are many ways to avoid foreclosure but you must act on time. Once you miss your first payment it gets hard to catch up and becomes overwhelming
Foreclosure is when a Lending institution repossesses your home because of unpaid mortgage payments. The mortgage company does not typically begin the official foreclosure proceedings until you are 3-4 months past due. The duration of proceedings depends on your State’s Foreclosure laws.
The Obama Administration has put a number of programs in place to help homeowners who are at risk of foreclosure and struggling to make their monthly mortgage payments. Homeowners are encouraged to contact their lenders and loan servicers directly to inquire about foreclosure prevention options available to them.
Programs to Help Homeowners Avoid Foreclosure Include:
.The Making Home Affordable © (MHA) Program: helps homeowners avoid foreclosure, helps stabilize the country’s housing market, and also helps improve the nation’s economy. Homeowners have the opportunity to lower their monthly mortgage payments and obtain a loan at a lower rate. There are also choices available for unemployed homeowners and homeowners who owe more than their homes are worth.
.Home Affordable Modification Program (HAMP): lowers a homeowner’s monthly mortgage payment to 31 percent of their verified monthly gross (pre-tax) income. The HAMP modification usually results in a 40 percent drop in their monthly mortgage payment.
.Principal Reduction Alternative (PRA): was designed to help homeowners whose homes are worth less than they owe, by encouraging servicers and investors to reduce the amount you owe on your home.
.Second Lien Modification Program (2MP): this program was designed for homeowners whose first mortgage was modified under HAMP SM and they have a second mortgage on the same property. The homeowner might be eligible for a modification or principal reduction on their second mortgage under 2MP.
.Home Affordable Refinance Program (HARP): is designed to help homeowners who are current on their mortgage but have been able to refinance because the value of their home has declined.
.Home Affordable Unemployment Program (UP): designed for individuals who are unemployed and are having a tough time making their mortgage payments. The program provides a temporary reduction or suspension on your mortgage payments for at least twelve months while you seek re-employment.
.FHA Forbearance for Unemployed Homeowners: Federal Housing Administration (FHA) requirements now require servicers to prolong the forbearance period for unemployed homeowners to 12 months. It also requires servicers to extend the forbearance period for FHA borrowers who qualify for the program from four months to twelve months also removing any upfront hurdles to make it easier for the unemployed borrowers to qualify.
.Home Affordable Foreclosure Alternatives (HAFA): If your mortgage payment is unaffordable and you wish to transition into more affordable housing, you may be eligible for a short sale or deed-in-lieu of foreclosure through HAFA SM.