If the daily stress of worrying about how to collect enough money to make your mortgage payment is reaching an unbearable point, you may be wondering if a foreclosure is your only option. The great news is that you have at least five options to losing your home in foreclosure!. The biggest hurdle for many people is asking for help to find their options. Solutions are not cookie-cutter so each set of circumstances demands a unique analysis to determine your options.
If you have received a foreclosure notice, or the word has started to be used by the mortgage company collection agents, you are nearing the point where the options become more limited. What does a foreclosure mean? It is a type of lawsuit in which a lender (such as a bank or mortgage company) sues a borrower who has failed to make his or her mortgage payments or has defaulted under some other provision in either the promissory note or mortgage. The lender will pursue a court order, by filing for foreclosure, to sell the property to raise money to pay off the debt.
One of the keys to having as many options as possible is to not delay by thinking somehow things will get better. It is also important to recognize that foreclosure is not your only option. Don’t let any popular thinking sway you-walking away from the problem is your worst choice! Walking away from the home indicates irresponsibility on your credit and will affect you if you wish to rent. Walking away also does not relieve liability..you may end up with a large judgment for the loss your lender incurs. A judgment will be a burden that will severely handicap you and if the bank chooses to collect the judgment, could result in garnishment of wages or other income.
Here is a list of five options to losing your home in foreclosure:
1. Negotiating with your lender-yes this is possible if you can present a viable, realistic plan
2. Getting government help- the federal government has a program that assists borrowers in avoiding foreclosure
3. Filing for bankruptcy- you will need to review this option with an attorney who specializes in bankruptcy
4. Selling your home and possibly doing it as a short sale, or
5. Giving your home deed to the lender.
Negotiating With Your Lender
Contact your mortgage company as soon as you realize you are having trouble making the payments. Mortgage companies really do not want your final outcome to be a foreclosure. They want to help you discover your options. Make the call when you have a few minutes as it may take a little time to be routed to the right place. When you find a helpful, knowledgeable person, attempt to obtain their direct contact information for future ease of communication.
Contacting your mortgage company needs to be done as soon as you know you can’t make a mortgage payment on time or in full. If you wait until you are behind three payments, it may be too late to pursue other options to foreclosure. As you become more delinquent, and the options are reduced, we have seen that it becomes much harder to turn the foreclosure ship around.
Options to suggest or request with your mortgage company other than foreclosure:
- Temporary payment plan to bring you current over a short-term period.
- Forbearance Plan is a repayment agreement where the lender agrees to hold back from exercising all of its rights under the note and mortgage if borrower will follow a plan to bring the payments current. A common forbearance plan terms will vary, but generally you must resume payments and arrange to pay the past-due amount over a short period of time. If you do not have a documented future incoming cash receipts to cover the proposed repayment plan, forbearance of the foreclosure will not be an option.
- Loan reinstatement. You agree to make up your missed (or reduced) payments by a specific date.
- Loan modification. Your lender agrees to alter the terms (interest rate, payments, final due date) of the loan so that you can better afford the payments.
Getting Government Help
The two primary programs are:
The Home Affordable Modification Program (HAMP). Intended to help homeowners who have suffered a financial hardship and are in danger of losing their homes to foreclosure. Under HAMP, eligible homeowners may be able to get their loan terms modified and their monthly mortgage payments reduced. For more information, see the Making Home Affordable website.
The Home Affordable Refinance Program (HARP). Created to help homeowners who are current on their mortgage payments but are unable to get traditional refinancing because the value of their home has declined. Under HARP, borrowers may be able to refinance their mortgages into a fixed-rate, low-interest loan. For more information, see the Making Home Affordable website’s page on HARP.
Consult with all parties who are assisting you prior to filing bankruptcy to understand what the effect of the bankruptcy will be on delaying a foreclosure on your home. There are two types of bankruptcy (Chapter 7 and 13). Chapter 7 may be able to delay a foreclosure..but it also may make it harder to sell the home if that is your goal. Chapter 13 may be able to be used to work out a court ordered repayment plan. Consider this option carefully. f your only goal of bankruptcy is to save your home, be sure to consider other alternatives first. Bankruptcy (either Chapter 7 or 13) will severely limit your options for many parts of your financial life for years to come. If your major financial problem is the home and mortgage payments, focus on the other options presented here long before considering bankruptcy.
Selling Your Home
Pre-foreclosure Sale or Short Sale will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You will want to work with an experienced and trained short sale Realtor. This is truly not a place to use your best friend with a real estate license because they offer to give you a reduced commission. Your short-sale expert agent will serve as an important intermediary between you and your lender to prepare for a successful transaction upon locating a buyer.
Some guidelines of how to determine if your home is a candidate for a short sale:
1.the “as is” appraised value is at least 70% of the amount you owe and the projected sales price is 95% of the appraised value;
2.the loan is at least 2 months delinquent prior to the sale closing date; and
3.you are able to sell your house within 3 to 5 months (depending on what your lender agrees to).
Giving the Deed Back to the Lender
Also known as a deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily “give back” your property to the lender. This won’t save your house, but it will help your chances of getting another mortgage loan in the future.
You can qualify if:
1.you are in default and don’t qualify for any of the other options;
2.your attempts at selling the house before foreclosure were unsuccessful; and
3.you don’t have another FHA mortgage in default.
Don’t Walk Away!
Don’t give up and let the lender foreclose on your home without considering your options. A foreclosure will hurt your credit rating and make it difficult, if not impossible, to buy another home anytime soon. In addition, if the profits from selling your home don’t cover the unpaid portion of your loan, your lender might sue you for the rest. It can’t be said enough..there are several good options. Walking away is not one of them.
When pursuing any bank workout option, or the HAMP or HARP programs, you will have to complete a package and provide copies of documents such as pay stubs, tax filings, and bank statements for review. If you do not provide exactly what is needed your request will sit idle until you do. Don’t let this happen as you are wasting precious time. Start preparing immediately before pursuing your options to have all of these important pieces of documentation available.
For additional details on foreclosure options and a nice comparison chart visit this page from Fannie Mae and click on the tab in the table labeled “Foreclosure Comparison”.