Options Available

 

Due to the housing crisis many homeowners have had to deal with the stress of financial hardships. More than one out of every seven homeowners has been forced down the path of foreclosure. Luckily, options have been made available to homeowners who are facing foreclosure. These options include repayment, mortgage modification, deed in lieu of foreclosure, bankruptcy, and short sale. Discussed in this article are these different options available to those facing a financial hardship.

Foreclosure

Foreclosure should typically not even be considered by borrowers facing a hardship considering there are several programs designed to help homeowners in distress. Foreclosure is the final outcome if action is not taken. Don’t let this happen to you! A foreclosure will destroy a homeowner’s credit and make it virtually impossible to qualify for a loan for a minimum of 5 years and often much longer. Additionally and most importantly, even after a foreclosure, a borrower is still liable for the original amount owed to the lender in many cases. What this means is in majority of states, lenders are allowed to come after a defaulted borrowers assets years after foreclosure, this includes automobiles, bank accounts, and additional assets. While foreclosure may seem like an easy solution, it is the most devastating consequence and should be avoided if possible.

 

Repayment Plan / Forbearance

A repayment plan, also referred to as forbearance, allows homeowner to repay the delinquent mortgage payments over a specified period of time. A repayment plan/forbearance is most successful when homeowners were facing only a brief hardship and have since stabilized and are in a position to repay the back mortgage debt. If a homeowner is still facing a hardship, the forbearance will only become a temporary fix and the homeowner will likely find themselves in trouble again.

Loan Modifications

Another option available to homeowners who wish to avoid foreclosure is mortgage modification. A mortgage modification will adjust one of the following things; the principal balance of the loan, the length of the loan, or the interest rate on the loan. The requirements are lenient for qualifying for a loan modification, homeowners can be in default, foreclosure, bankruptcy, current or late on payments at the time of applying for a mortgage modification. Reductions to the actual principle are rare and only occur in 1% of all loan modifications, so the vast majority of homeowners are still left in a negative equity position. The most successful loan modifications usually reduce the monthly mortgage payment; however prolong the length of the loan. Generally, loan modifications are only a temporary fix for homeowners in distress. The process prolongs the inevitable and homeowners soon find themselves in trouble again. Loan modifications are most successful when homeowners only faced a temporary hardship and a slightly lower payment remains affordable to them.

Deed In Lieu of Foreclosure

A deed in lieu of foreclosure is an option that can be available to a homeowner in default that is already in foreclosure proceedings. This this option can allow the homeowner to deed back title to their home to their lender prior rather than continue with the foreclosure process. Lenders will benefit from a deed in lieu because they will not have to invest more time and capital resources in the foreclosure process and dealing with potentially vandalized property should the home sit for a long time after the foreclosure process. While this may seem like a good option to many home owners in hardship in order to “wash their hands” of the situation, there can still be severe penalties. In most cases, the borrower is still completely liable for the deficiency (loan balance less proceeds from final property sale), and their lender can and will pursue collections years up the road. In addition, the impact to a borrowers credit and ability to purchase a property again in the future is nearly identical to a foreclosure.

A deed in lieu of foreclosure is and option available to homeowners already in foreclosure proceedings. The option allows homeowners to deed back the title of the home to their lender before finishing the foreclosure process. Lenders benefit from the deed in lieu of foreclosure process because the lender no longer has to invest time and resources in the foreclosure process. Additionally, the lender has less fear of dealing with a vandalized property should it have to sit vacant for a long period of time after the foreclosure process. While some homeowners may see this option as a quick way out and a means to wash their hands of the situation, there often are severe penalties that

come with this option. In most cases, the borrower is still held accountable for the deficiency and the lender will attempt to collect on this debt for years to come. Furthermore, the impact to the borrower’s credit is nearly identical to that of a foreclosure, which will hinder the borrower from qualifying for future loans and can even gaining employment.

 

Bankruptcy

Bankruptcy has been a considered option for homeowners who want to stop foreclosure, however; only in some states and situations can a bankruptcy be a foreclosure solution. Bankruptcy will not stop the foreclosure process but simply delay it if a homeowner cannot afford to continue with their mortgage payments. Filing for bankruptcy during a foreclosure can result in a damaged credit score, can be expensive and can only be filed once every seven years. A bankruptcy can not only effect a borrower’s current and future employment in many fields, but will also scar a borrower’s credit for many years to come. While a bankruptcy may seem like an easy way out, it should only be used as a last resort.

For those wanting to stop foreclosure, bankruptcy has long been considered an option for homeowners. However, it is important to understand that only is some states and situations can bankruptcy be a foreclosure solution. If a homeowner cannot afford to make their mortgage payments, bankruptcy will not stop foreclosure process but only delay it. Filing for bankruptcy can be expensive, can only be done once every seven years, and will destroy your credit score. While bankruptcy may seem like an easy solution, it, like foreclosure, should only be used as a last resort after all other options are exhausted.

short-sale1Short Sale

One of the best ways to avoid foreclosure is by selling ones home through at short sale. A short sale helps homeowners who have faced a financial hardship which has caused the homeowner to be late on their payments or homeowners who anticipates a future hardship preventing them from being able to pay their mortgage. In a short sale the lender agrees to take accept a lesser payoff than what is actually owed on the home once the home is sold. The lender is willing to accepting the lesser payoff to avoid expensive foreclosure expenses and minimize future loses. The advantage for the homeowner is the avoidance of foreclosure and the prevention of the devastating impact to their credit that a foreclosure would have. Credit recovery after a short sale is much easier than after a foreclosure. Additionally, homeowners are able to qualify for another home loan is as little as three years, sometimes even less. Furthermore, in most cases the lender will totally forgive the borrower of any deficiency between the sales price and the original amount owed.  Lenders are eager to cut their losses with a short sale as thus are often willing to offer cash back incentives for completed short sales.

 

It is important for homeowners to understand that they do have options available to avoid foreclosure even if already in the process of foreclosure. Homeowners should immediately seek the guidance of a local short sale specialist or housing counselor as soon as they start to realize their financial situation could take a toll on their place of living. Contact us for no cost assistance and guidance during your time of greatest need.

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