Instead of Foreclosure
March 13th, 2008 | by rachel |
There are many reasons why record numbers of homeowners are facing foreclosure. Some got caught up in mortgages that didn’t match their incomes; others got behind when interest rates adjusted upward; still others didn’t know options other than foreclosure were possible when cash ran short. Coupled with the other economic problems (high gas prices, increasing food costs, possible recession) facing the nation, losing a home can be devastating. If you have already or think you might fall behind on house payments, investigate these options that may work instead of foreclosure.
At the first hint of trouble with your finances, the most important thing you can do is to contact your lender. Once the lender knows that you are experiencing financial difficulties, they can start the process of arranging a workout plan that can help you. Some of the possibilities include:
A repayment plan will work for people that have only missed 1 or 2 payments. This process tacks the amount of the missed payments on to upcoming payments due. In effect, it lets you “make up” what you owe.
LOAN MODIFICATION actually changes the terms of the mortgage contract. When this workout is used, the lender reduces the amount of the mortgage balance and/or interest rate so that payments are reduced. If the reduction is enough, homeowners can continue to make them on time and in full.
One of the biggest problems with the mortgage crisis is that the value of homes have dropped (and continue to do so). For some homeowners, the amounts they owe on their mortgages is greater than the value of their home. A NEGATIVE AMORTIZATION certificate lets lenders refinance a loan to make the amount owed the same as the value of the house. Depending on the structure of this workout, homeowners COULD owe the difference between the original loan and the refinance if the house sells for a greater amount at a later date.
Refinancing to a fixed rate mortgage is a good option for homeowners that have ARMs (adjustable rate mortgages) where payments are increasing.
Certainly, the housing market favors buyers right now. For those that ARE able to find buyers for their homes, a SHORT SALE gives them the ability to get rid of the payments that are straining their budget and it prevents the damage that a foreclosure can cause. When negotiating a short sale, it is important to have written confirmation that the lender will accept the amount offered as payment in full. Otherwise, they can sue for the difference later on.
If you just need some time, ask for a FORBEARANCE. When granting that, a lender has some hope that the homeowner will be able to pay at some point. This option keeps the lender from having becoming the owners of a property they don’t really want AND it gives the homeowner an opportunity to regain financial footing. This option differs from a repayment plan in that, when payment is made, the entire lump sum that was missed is due.
Perhaps the most drastic solution is for a homeowner to WALK AWAY. Some recent reports indicate that growing numbers of homeowners are doing this. They figure it’s easier to turn in the keys to the bank and start over than it is to figure a way out of the problem. A “deed in lieu of foreclosure” is one way to accomplish this.
As you can see, there are options other than foreclosure. Don’t be fooled, though. None of them are good ones! All of them damage your credit history and your financial future. Certainly, lenders will work with you to keep from having to go to the time and expense of managing and selling properties they don’t want. They will only work with you, however, to a certain point. When arranging a workout plan, they are only willing to go as far as they have to. They will work out something only as low as the level where they are confident they can get the most of the money they are owed. If one of these options works instead of foreclosure, it’s all the better for everyone involved.
WHERE TO GO TO FIND HELP:
Home Ownership Preservation Foundation
One Response to “Instead of Foreclosure”
By Carrie Newhouse on Apr 6, 2008 | Reply
The author is right on target. No option is a great one but at least if you follow through with any of these you are trying to honor your personal responsibility.