Alternatives

Foreclosure can be one of the most devistating financial challenges a person will ever face. The emotional toll a foreclosure can take doesn’t help matters either. The uncertainty of the near future is nerve racking! How long will it take before the bank kicks us out? Will we be homeless? Where are we going to go? Is the bank going to come after us after the foreclosure? and many other questions begin to consume a person. Usually there is a set of unfortunate circumstances in a person’s life that led to the foreclsosure in the first place. What many don’t know is that foreclosure, often times, is avoidable.

You need to know what your options are  (that’s why I put this site together)! Below are some options, or alternatives, to foreclosure.

Your options and alternatives to foreclosure:

Do nothing: Do nothing and the bank forecloses on the home. Each situation and each bank are different. I have seen banks take months and months to foreclose and I have seen some foreclose and take posession in as little as 4-5 months. In the end you pay the ultimate price and your credit takes a sever hit!

Reinstatement: A reinstatement is the simplest alternative to foreclosure but usually the least realistic. A reinstatement is when a homeowner pays the total amount owed to the mortgage company. This option does not require lender approval and will reinstate the loan to good standing. A reinstatement can be done all the way up to the day before a scheduled foreclosure sale. Reinstatements are typically unrealistic because the amount owed in addition to fees and fines is usually quite large. The circumstances that precipitated the foreclosure in the first place usually make a reinstatement very difficult.

Forebearance or repayment: A forebearance or repayment plan takes place when the homeowner negotiates with the mortgage company to repay the back payments over a period of time. This option usually involves the homeowner making the current payment in addition to a portion of the back payment owed. The benefit is the homeowner can make the back payments over time. The drawback is some lenders require a homeowner to qualify for a forebearance.

Loan Modification: A loan modification involves the lender doing one, or some combination, of the following: reducing the rate, reducing the principal balance, or reducing the term. The benefit to a loan modification can be a reduced monthly payment. The drawback is the lender will require the homeowner to ‘qualify’ for the modification by submitting your bank statements, pay stubs, tax returns, and other financial documents. The lender also has to be actively pursuing modifications.

Deed in Lieu of foreclosure: A deed in lieu of foreclosure is when a homeowner returns the home to the lender without going through the foreclosure process. A deed in lieu requires the homeowner to vacate the home and also requires lender approval. An occasional benefit to a deed in lieu is the bank will waive their right to a deficiency judgement. The drawback is it affects your credit the same way a standard foreclosure would.

Get a new loan: This can be an option for some especially if you still have equity in your home. However, if you owe more than your home is worth, it will be difficult to find a lender willing to lend enough money to pay off all the subordinate liens. Another problem is if your credit shows late payments, it will be much harder to get new financing.

Sell the home: If you don’t want your home anymore, this is a good option. However, if you owe more on your home than the market will support then you would need to sell short.

Rent the home: You might be able to rent your home if your mortgage payment is low enough that market rent will allow it to be paid. The benefit is you get to keep the home. The drawbacks include the headaches that come with renting a property.

Bankruptcy: I have seen bankruptcy offered as a solution to foreclosure. A bankruptcy will only delay a foreclosure it wont stop it. In year’s past a bankruptcy might have been a more viable solution. However, in recent years the bankruptcy laws were changed considerably. There are two types of Bankruptcy: Chapter 7 and Chapter 13. The difference is a Chapter 7 bankruptcy will eliminate all of your debts and a chapter 13 bankruptcy is basically a court monitored repayment plan. Bankruptcy can be expensive, is damaging to your credit, and can only be filed once every 7 years.

Short Sale: A short sale is when a homeowner owes more than their home is worth. You can hire a qualified real estate agent to help you market and sell your home and negotiate the short sale terms with your lender. A short sale requires lender approval and requires some form of hardship. A harship includes but is not limited to: job loss, divorce, increase in mortgage payment, medical problems, unexpected relocation, excessive debt and more. The benefit to a short sale is the homeowner can avoid foreclosure and salvage some of their credit. Borrower may qualify for a mortgage in as little as 24 months (opposed to 5+ years with a foreclosure). Often times the lender pays the real estate agents fee. The lender usually nets more with a short sale as opposed to a foreclosure by saving money on interest, attorney fees, and other related foreclosure costs. If you are interested in a short sale, have questions, or need help, please contact me today!

Servicemembers Civil Relief Act: If you are a member of the military and are experiencing financial stress due to deployment, and you can show that you entered into debt prior to deployment, you may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has attorneys that will work with you. You can lower your payments on all your consumer debt including a mortgage. You must be active military to qualify. Contact the American Bar Association to find out more!

This page is intended only to represent a summary of some of the options available to a homeowner facing foreclosure. This page is intended only for informational purposes and is not to be construed as advice. It is always wise to contact an attorney for state laws, your rights and options, and when making a legal decision.