An explanation of the different alternatives to FORECLOSURE

1)    Loan Modification – Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan.  This may allow the homeowner to catch up at a more affordable level.  To qualify, you must prove to the lender you have fixed the problem that caused the late payment and that you can afford to make the payments with the new terms.

2)    Forbearance – The lender may be able to provide a temporary payment reduction or suspension of payments.  Any missed payments will either be added to the back of the loan (accruing interest) or a separate repayment amount will be made once the payment suspension is over.  This option is useful if the homeowner experienced a temporary loss/reduction of income or a temporary increase in expenditures.

3)    Partial Claim – A loan from the lender for a 2ndloan to include back payments, costs and fees.  Must qualify for the loan which will very likely be at a higher interest rate and it would surely be a recourse loan, if you were to end up defaulting later.

4)    Settle with Junior Lien Holders – Junior lien holders may be willing to take as little as 5% (usually 10%-20%) of the amount owed if you can demonstrate that the loan would be completely wiped out if foreclosed upon by the 1stTD holder.

5)    Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid).  The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale or break even.

6)    Sell and bring in money – If you have the ability, it may be worth saving the credit and any future deficiency judgments which would include fees & penalties not otherwise payable.

7)    Short Sale– Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property´s value. In most cases this will eliminate the need to pay any of the difference between what is owed and what the property sold for.  With the exception of HOA fees, all costs of the sale are that of the lender(s).

8)    Continue Struggling – A homeowner does not have to be destitute before a lender will approve a short sale.  Unfortunately some deplete their entire savings, retirement and children´s college tuition before they call me.

9)    Payoff/Refinance – This is rarely an option because if you are already into the foreclosure process, you have already damaged your credit and alerted potential lenders that you are having trouble. And if you are already having trouble paying your current mortgage, then getting a loan for a different one at an even higher interest rate is usually not possible. In addition, the property will most likely need some equity in it to be able to qualify. [Avoid borrowing from a friend or relative to accomplish this as the possibility of saving a house that is not worth the amount borrowed is really not worth losing an otherwise valuable relationship if things don´t go as planned.]

10) Reinstatement – Pay the entire default amount plus interest, attorney fees, and late fees.   Borrowing from a friend or relative to accomplish this is not usually a good idea since you may ruin an otherwise good relationship if things don’t get better.  A homeowner should avoid borrowing from a friend or relative to accomplish this as the possibility of saving a house that is not worth the amount borrowed is really not worth losing an otherwise valuable relationship if things don´t go as planned.

11) Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current and there cannot be a junior lien holder.  I would use this as a last resort in order to try to avoid a deficiency judgment, if a short sale was not approved.  Most loan applications ask if this has ever happened.

12) Bankruptcy – This option can liquidate debt and/or allow more time.  There is no guarantee a homeowner will be able to keep the house since it does not erase mortgage secured debt.  Check with a bankruptcy attorney to see if you could be eligible to settle with any junior lien holders.

 (Liquidation) – To completely settle personal debt

 (Wage Earner Plan) – Payments are made toward a plan to pay off debts in 3-5 years.

(Business Reorganization) – A business debt solution.


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