Short Sale Information
Avoiding Foreclosure
Whether you have fallen behind on your mortgage payments, are attempting to negotiate a loan modification with your lender or contemplating a strategic default, the ultimate goal is to find a solution other than foreclosure.
As you may have already heard by real estate industry or foreclosure prevention specialists, one of the best ways to avoid foreclosure if you are already behind on your mortgage payments is to prevent the filing of a Notice of Default.
Timing Is Everything
In most instances, Servicers and Lenders do not want to foreclose on delinquent borrowers as the first option due to the amount of time and money that they may potentially lose going through the legal process and eventually getting the property re-sold.
We have all heard nightmare stories of banks foreclosing on homeowners by accident or half-way through a loan modification process.
However, with the overwhelming volume of mortgage defaults flooding the marketing, it's obvious that lenders will make mistakes.
This is why it's so important to work with a short sale real estate company that has the experience, systems and relationships in place in order to prevent the banks from making the wrong decision based on a lack of communication.
So, if you find yourself in a position where you can no longer make your mortgage payments due to sickness, job loss or another hardship, there are other options that your lender may present to you.
Foreclosure Alternatives
Depending on your particular situation and hardship circumstances, here are a few potential options your lender might propose, provided you opened the lines of communication early in the process.
Time off from making current payments, or from catching up on past due balances. Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you.
If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens.
Spread out the missed payments over a longer term. For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan.
A Loan Modification is basically changing the terms of your loan. If your mortgage is an adjustable rate loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period.
If you have sufficient equity and meet the lender's lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan.
Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim.
Ways to Stop Foreclosure
Once a Notice of Default is filed, options and timelines become more restricted. It's obviously better to work out a foreclosure avoidance strategy with your lender well in advance.
You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:
Interview real estate agents to get an opinion of market value and average DOM to sell your home. You might be tempted to hire a discount broker, but sellers who are racing against a foreclosure need the experience, constant communication, high level involvement and marketing systems that full-service real estate brokers offer.
If your home is worth less than the amount you owe, you might be a candidate for a short sale. Even though a short sale may have a negative impact on your credit score, it does far less damage than a foreclosure.
There are actually mortgage programs that will allow you to purchase a home a day out of a short sale, where most lenders require a 4-7 year seasoning after a foreclosure.
This is called deeding the home back to the lender. The borrower gives the lender a properly prepared and notarized deed, and the lender forgives the mortgage, effectively canceling the foreclosure action. Keep in mind though that this will have the same effect on your credit as a foreclosure does.
Worse Case - The lender might also work an arrangement where a home owner can remain in the home until finding a place to move into.
Owners in default should negotiate the right to retain occupancy, arguing that if the lender followed through on the foreclosure, an owner would still enjoy the right of possession during that procedure.
If you are in a position where a financial hardship or a circumstance out of your control is preventing you from continuing to make high mortgage payments, give HHC a call today to discuss your options before it is too late.