This may be a long passage, however its a helpful tool if you want to consider your options with selling your home and haven’t been successful. What are your options if you are facing foreclosure? I’ve found several.
1. Re-instatement – All the way up to the day of the court house sale you have the right to catch up all the payments in arrears and stop foreclosure. The payment would include all months behind in payments, late fees and court costs.
2. Forbearance or Re-payment plan – Here you negotiate a repayment plan with your mortgage company to catch up all the payments in arrears, including late fees and court costs. The Forbearance is paid in smaller payments over time instead of one lump sum.
3. Refinance – If current rates are lower than your present mortgage rate and your credit has not been too badly damaged, you can refinance to a lower interest rate and reduce your total monthly payment.
4. Rent – Renting the home so someone else makes your mortgage payment not only reduces your immediate stress, it also gives you a good future investment. Your Realtor can show you what homes like yours are currently renting for.
5. Sell – If you have equity in the property it is always best to sell the home instead of losing it to foreclosure and damaging your credit and financial future. Your Realtor can help you determine fair market value for your home and calculate your net proceeds after the sale. Contact your mortgage company to get the payoff for all of your mortgages before this meeting so the calculations are accurate.
6. Mortgage Modification – Banks are doing a lot of mortgage modifications because they do not want to own real estate, which is exactly what happens when they foreclose. After foreclosure, they have to pay the taxes, insurance, yard and house maintenance, utilities, asset managers, Realtors, attorneys and property maintenance until it can be sold. (Usually at a reduced cost). Call your mortgage company to ask if they would be willing to reduce your monthly payment to something more affordable for you.
7. Short –Refi – Also known as the Government’s HOPE Program. This relatively new phenomenon shows just how far some mortgage companies and lenders are going to avoid foreclosing on properties. This process involves the refinance of a home with a reduction in the principal balance and often the interest rate as well.
8. Service Members Civil Relief Act (SCRA) The SCRA is a bill that was signed into law (Public Law 108-189) on December 19th 2003. This law provides certain protection to military personnel. The law also provides Service members other protections.
9. Deed in Lieu of Foreclosure – This is a volunteer/friendly foreclosure where the homeowner essentially gives the deed back to the mortgage company. This action prevents the banks from having to go through a lengthy foreclosure process. They still report a Deed-in-Lieu as a foreclosure on your credit report. And it will give you the same negative credit consequences as mentioned above. However, they may waive their rights to a deficiency judgment because of your cooperation. You are still subject to taxation and this solution only works in cases where there is one mortgage and there are no liens (or very small liens) on the property. In rare cases the first mortgage company will negotiate with the second mortgage company.
10. Bankruptcy – This is where you hire an attorney for a fee to file chapters, 7, 11 or 13 taking all or part of your debt to the courts to be dismissed. A bankruptcy delays foreclosure, but ultimately you end up with a bankruptcy and a foreclosure on your credit report. Many people believe when they file bankruptcy all of their problems go away. The truth is, creditors can still come back to you for a deficiency judgment and you may have serious tax consequences too.
11. Short Sale –
Definition: A homeowner is ‘short’ when you owe an amount on your property that when combined with closing costs and commissions is higher than current market value.
In today’s financial crisis, mortgage companies and banks are welcoming short sales and have created entire divisions to process them. Wells Fargo is reporting 15,000 short sale package requests per day. However, the Short Sale is an involved process that takes time, patience, good communication skills, organization and professionalism. Short Sales done correctly will create a win-win for everyone. A Realtor with the CDPE Certified Distressed Property Expert designation is best equipped to guide you.
Here are the benefits to you for a Short Sale:
It doesn’t matter how many total mortgages you have on the property. You could have a first mortgage, second mortgage, and even a home equity line of credit and, you or your Realtor, still negotiate a favorable short sale with all of the lien holders saving you from a foreclosure. In a short sale you fill out a short sale package to show hardship and market the home for sale to obtain an offer within the days left before public auction. The offers are submitted to your mortgage companies for approval. In most cases when an offer is received it will immediately stop the foreclosure process. The mortgage company benefits from agreeing to such a sale because it ultimately saves them the time and money associated with a foreclosure. Because you, as the homeowner, are cooperating with the sale and using your best efforts to reduce their loss, they view this very favorably and work with you and your Realtor for an amicable solution. In many cases they will wave their deficiency judgment rights and, for a limited time, the government has placed a halt on tax liabilities. (Consult your CPA or accountant for your particular tax liability) The best news about a successful short sale is your credit report does not show a foreclosure. It will show late payments and a “satisfied” debt. Even though late payments and satisfied debt are viewed negatively, the effect is approximately 50 basis points for two years and it could even be shorter if you are pro-active in improving your credit score. Compare a short sale to a foreclosure where you will have a basis point drop of approximately 300 points. Plus a foreclosure stamped on your credit report for the next 10 years. A foreclosure is the most damaging report of all. Creditors know that everyone needs a place to live and if they abandoned their home how quickly would they walk away from a car payment, student loan, medical loan or credit card payment?
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