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Reinstatement
A reinstatement is the simplest solution for a foreclosure,
however it is often the most difficult. The homeowner
simply requests the total amount owed to the lender(s)
to date and pays it. This solution does not require
the lender's approval and will 'reinstate' a mortgage
up to the day before the final foreclosure sale.
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Pro: bring your mortgage
current based on your lender's approval.
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Con: Requires that you, the homeowner are able
to pay all back payments, fines and fees.
Forbearance
or Repayment Plan
A forbearance or repayment plan requires the lender(s)
allows you, the homeowner, to repay back payments over
a period of time. You, the homeowner, typically makes
their current mortgage payment in addition to a portion
of the back payments they owe.
- Pro:
Allows you, the homeowner to make back payments over
time.
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Con: Requires that a homeowner be in a financial
position to pay not only their current mortgage, but
also a portion of the back payments owed. Some lender(s)
will require a homeowner to 'qualify' for forbearance.
Loan
Modification
A loan modification involves the reduction of one of
the following: the interest rate on the loan, the principal
balance of the loan, the term of the loan, or any combination
of these. These typically result in a lower payment
to the homeowner and a more affordable mortgage.
- Pro:
Reduces the payment a homeowner is required to make
on a monthly basis and may reduce the principal balance
of the loan
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Con: Requires that a homeowner 'qualify' for
the new payment and will often require full documentation.
Lender has to be actively pursuing modifications.
Rent
the Property
A homeowner who has a mortgage payment low enough that
market rent will allow it to be paid, is able to convert
their property to a rental and use the rental income
to pay the mortgage.
- Pro:
Allows homeowner to keep property indefinitely.
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Con: The issues that can arise with a rental
property are many, and rent often does not cover the
full cost of property ownership and maintenance.
Deed
in Lieu of Foreclosure
Also known as a 'friendly foreclosure', a deed in
lieu allows the homeowner to return the property to
the lender rather than go through the foreclosure process.
Lender approval is required for this option, and the
homeowner must also vacate the property.
- Pro:
Many times in a successful deed in lieu, the lender
will forego their right to a deficiency judgment.
- Con:
Requires that a homeowner vacate the property, and
a deed in lieu will be reported to credit bureaus
as a foreclosure.
Bankruptcy
Many have considered and marketed bankruptcy as a 'foreclosure
solution,' but this is only true in some states and
situations. If the homeowner has non-mortgage debts
that cause a shortfall of paying their mortgage payments
and a personal bankruptcy will eliminate these debts,
this may be a viable solution.
- Pro:
Does not require lender approval.
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Con: If a homeowner cannot afford their mortgage
payment, a bankruptcy will only stall—not stop—the
foreclosure process. Bankruptcy can be costly, is
damaging to credit scores, and can only be declared
once every seven years.
Refinance
If a homeowner has sufficient equity in their property
and their credit is still in good standing, they may
be able to refinance their mortgage.
- Pro:
In some cases, this will lower payments.
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Con: refinance can be an expensive process.
Your home must appraise for the loan amount which
can be diffiult in a declining market like metro Atlanta
is experiencing..
Servicemembers
Civil Relief Act (military personnel only)
If a member of the military is experiencing financial
distress due to deployment, and that person can show
that their debt was entered into prior to deployment,
they may qualify for relief under the Servicemembers
Civil Relief Act. The American Bar Association has a
network of attorneys that will work with servicemembers
in relation to qualifying for this relief.
- Pro:
If qualified, this will lower payments on all consumer
debt in addition to mortgage payments.
- Con:
Must be active military to qualify.
Sell
the Property
Homeowners with sufficient equity can list their property
for sale with a qualified agent that understands the
foreclosure process in their area.
- Pro:
Allows homeowner to avoid foreclosure and harvest
some of their equity.
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Con: In many cases today, homeowners do not
have sufficient equity to sell their property without
negotiating a short sale (see next solution).
Short
Sale
If a homeowner owes more on their property than it is
currently worth, they can hire a qualified real estate
professional to market and sell their property through
the negotiation of a short sale with their lender. This
typically requires the property to be on the market
and the homeowner must have a financial hardship to
qualify. Hardship can be simply defined as a material
change in the financial stability of the homeowner between
the date of the home purchase and the date of the short
sale negotiation. Acceptable hardships include but are
not limited to: mortgage payment increase, job loss,
divorce, excessive debt, forced or unplanned relocation,
and more.
- Pro:
A short sale allows the homeowner to avoid foreclosure
and salvage some of their credit rating. This also
keeps foreclosure off the individual's credit record,
and in many cases will allow the homeowner to avoid
a deficiency judgment. Borrower may qualify for another
mortgage in as little as 24 months (as opposed to
five years for a foreclosure).
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Con: Short sales can be a long and complicated
process.
This
represents only a summary of some of the solutions available
to homeowners facing foreclosure. Please contact
Mike today for a free confidential evaluation of
your individual situation, property value, and possible
options.
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