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Foreclosure Intervention Options
Loan Modification:
If available to you, this is perhaps an ideal resolution. The Lender typically requires one or two payments now then will tack the outstanding payments on to the end of the mortgage. Sometimes an interest rate reduction is possible which may result in lower monthly payments. Loan modifications are usually limited to one per year and not more than four over the life of the loan.
Forbearance:
Most lenders will offer a forbearance agreement. Like with a loan modification, a cash payment is required which is often around 50% of the past due payments. The remainder of the payments are then split into 6 to 9 payments and added to your regular monthly payment. This can create a huge financial strain for most budgets and homeowners often fail in their attempts to keep up with the high payments.
Subject to:
The homeowner conveys the property by Warranty Deed or Quitclaim Deed. In exchange, the buyer agrees to pay the arrearages to bring the mortgage current and make the monthly mortgage payments until the property is re-sold or refinanced, whichever comes first. The homeowner cashes out his equity at closing and must vacate the property. The objective is to take over the existing loan, bring the payments current, keep them current . This agreement should be no more than 3-5 years in length. The longer the payments are made on your loan, the better your credit gets. REMEMBER… you, the homeowners, must be aware that your names will remain on the mortgage and remain fully liable for the mortgage payments. The Lender may accelerate the note, commonly referred to Due on Sale. The lender doesn't have to accelerate but it is at the lender's sole discretion.
Short Sale:
In a nutshell, a “short sale” is negotiating with a mortgage holder (bank) to accept less than what is owed as payment in full. A short sale is a strategy when a distressed homeowner owes the bank close to or more than what the property is worth.
Here’s how it looks: The homeowners owe $200,000 to their first mortgage holder and the payments are in arrears. Their property is worth $200,000 in retail condition. With the proper negotiating strategies, the bank accepts $150,000 as payment in full.
With proper negotiations, deals that most investors would pass on and turn into amazing deals. Many homeowners have avoided foreclosure although had no equity. This is becoming more and more common. A successful short sale is more likely when you work with a professional.
Bankruptcy:
The chapter 13 bankruptcy is a reorganization of the debt. Chapter 13 is sometimes used to stall the foreclosure or buy time. Filing bankruptcy does not relieve of the debt nor the responsibility of making monthly payments. It's a serious decision and should be used only as a last resort.
Buy Back:
This type of agreement has several variations but all have a common basis: You sell your house to the investor/buyer then pay rent (to stay there) while repairing your credit with the intent to buy the house back at the end of the term.
Typically the homeowner receives little or no cash at closing. The foreclosure is stopped either by the investor/buyer paying off the debt or sometimes the investor/buyer will reinstate the loan and resume making regular payments (referred to as a subject-to purchase).
This can be a good solution for some homeowners but a nightmare for others. It is imperative you understand all the details of the agreement - have a professional work with you for any type of buy back. All buy-backs are not created equal.
In some states, buy-backs are illegal. Sometimes buy-backs are structured in the form of lease options. Don't enter into a buy back agreement without the help of a professional.
Deed in Lieu:
The Deed-in-Lieu of foreclosure is when you give up ownership of your home and deed it back to the bank. The bank will always accept this; however; it’s not a good option for you. The reason it’s not a good option is because the bank could come after you, the homeowner, for a deficiency judgment.
Let’s explain what a deficiency judgment is. The bank takes back a house that has a mortgage balance of $200,000 and is worth $200,000. The bank ultimately sells the house for $150,000. Since the bank just lost $50,000, they come after you for it. This is the deficiency. They will chase you, the homeowner, for the amount due. The banks do not tell you that they will chase you for that balance.
This is really never an option, unless you get it in writing from the bank that they will not chase you for a deficiency judgment or 1099 you on your taxes. A 1099 is ordinary income to you that is reported to the IRS. If you were in the 30% tax bracket, you would have to pay approximately $15,000 in taxes to the IRS for losing your home. The bank seldom discloses this information to you.
Refinance
Sometimes, despite past due payments, refinance is possible. Several factors are taken into consideration such as equity and current financial abilities. Most import is the lender – you need a lender experienced in working with foreclosure bailouts. We seen it happen too many times that homeowners find out days before the foreclosure sale that their new refinance is not going through. Often, the mortgage broker that made the grandiose promises simply no longer return calls. They’ve used up the homeowner’s precious time.
Call today. Solutions are just a phone call away.
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