Foreclosure Avoidance Options

Foreclosure is one of the most devastating financial challenges that a family can face and one that many can avoid. The optioons available to foreclosure are many.

Do not underestimate how important it is to minimize the damage to your credit!

Your future ability to purchase items, get a job, rent or buy a home often requires a credit check. Maintaining the best credit rating possible is key to the available options that you will have available to you in the future.
Following is a brief explanation of some of your foreclosure avoidance options:

REINSTATEMENT
Problem that caused it has been resolved. Good up to day of foreclosure. Missed payments, legal fees, processing fees, penalties. No agent.

FOREBEARANCE OR RE-PAYMENT PLAN
Requires lender approval. Pay the delinquent amount over time—typically 12 months. Mortgage not fully reinstated until finish repayment. Could show up as late payments until last payment made. No agent.

RENT
Dangerous. Only if all costs can be made.

REFI
Low probability at this time. Most loans were originally no doc. Full doc now, unless you put 60% down. No agent.

SHORT REFI/MTG MODIFICATION
Also called a ‘Trial Modification’. Requires lender cooperation. However, lenders are not required to participate. Success rate is only 1 in 8 loans approved. Those average additional $40k down payment. Modifies loan and reduces pymt for a period of time. Lower interest rate (difference tacked on back end of loan), deferred interest (neg am), another ARM loan that adjusts again in 5 years, extended term (maybe both), missed pymts usually tacked on end of mtg as a balloon pymt. Principal reductions are rare. Most of these are denied after months of lost time—while the foreclosure clock ticks. No agent. These are complex modifications and few homeowners have been able to come to agreement with their lender. Consult an attorney if this is the option you choose. These are very complex.

SHORT SALE
Also called a ‘Pre-foreclosure Sales Program’. Owe more than worth. Must show financial hardship. Typically sell for 15% less than market. Owner can’t have liquid funds to pay down mtg. Current debts exceed assets. Retirement accounts are protected at this time. Sellers upside down without a hardship are NOT candidates for a short sale. Even with all the alternatives to foreclosure available today, the answer for most financially distressed homeowners is still a short sale. Banks prefer a short sale over a foreclosure. However, even with the government’s attempt at simplifying the short sale process, it is still a difficult and confusing one. Must use agent.

TRADITIONAL SALE
If ability to bring money to closing table. Use agent.

DEED IN LIEU
“Foreclosure lite”. Reported the same in most cases. Can have same effect on credit report. 2nd ary lien holders have to agree. Most won’t. If bank says it won’t affect credit, get it in writing. It’s not true. Most banks will tell you to do a short sale. They don’t want the property. No agent.

BANKRUPTCY
It can erase all other debt and then you will be able to make mtg pymt. Will save house if primary residence. In most cases, it is the mortgage payment that’s the trouble. Doesn’t make the mtg go away. Just gets rid of other debt.

MILITARY
SCRA – Service Members Civil Relief Act. Must show mtg entered into before active duty started. Must show military is reason for inability to pay. Also reduces consumer debt to 7% or zero.

HARP
Current government refi program. Must qualify. Provides a more stable loan. Does not reduce amount owed. IF more than 30 days late on payments, you will not qualify. Can lower rate, extend term or reduce principle due. Most often, fees added to back end.

HAMP
Current government modification plan for primary residences not vacated for more than 90 days. Fannie Mae and Freddie Mac insured loans not included. Put you on payment plan for 3 months and then most folks turned down anyway. Reduce payments to 31% debt ratio. Banks not required to participate. Servicer doesn’t make pymts to your lender. Shows as late payments accrued. Don’t pay escrows. Credit gets messed up more and time is ticking on for foreclosure process. Foreclosure stalled during this time, but clock still ticks. No reductions in commissions. No agent.

HAFA
Current government short sale program (April 2010). After turned down for HAMP, you can apply for this. They have to agree within 30 days and give you a short sale list price. Must use a real estate agent. Under same qualifications, you can do a Deed in Lieu. Must be primary residence. $3000 in relo after ss or deed in lieu. Lenders pay all fees. Use agent.

FANNIE MAE/FREDDIE MAC
These insured loans will do a re-fi only. Requirements are that the property can’t owe any more than 105% of current market value of the home. Most homeowners knocked out of ballpark right off the bat as most homes are worth much less than the loan amount now and the debt ratio is well over 105%. No agent.
In August 2010, they are planning on adopting programs similar to HAFA amd HAMP with minor adjustments for requirements to qualify and adjustments for servicers.

FORECLOSURE
Usually this is the worst option (show comparison fore vs. ss). It does the most damage to a property owner’s credit. It might make sense for a property owner who has no other resources with which to obtain housing to stay in the property as long as possible.

***Sellers are advised to consult with tax and/or legal counsel regarding the impact of the new laws and other tax rules on their circumstances.

Please, don’t wait any longer. Take charge of your situation and get back in the driver’s seat. The earlier you act, the better negotiating position we have with your bank. There are no miracles going to happen to save you from the current path you are on unless you make the call for help today.
Give yourself a second chance.
Call Lori Bender today at (239) 234-0387.