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Forebearance or Workout Plan with the Lender

Lenders will sometimes give homeowners the option of catching up missed payments by adding the amount owed to their original monthly mortgage bill.  The Homeowner must qualify for this and deliver all necessary paperwork to the bank in order for them to approve a forbearance plan.  So, as an example, a homeowner owing $6,000 in missed payments and late charge would have to pay that amount back in addition to their normal mortgage amount.  Typically, Lenders will allow up to a maximum of 18 months for the money to be paid back to them.  This always significantly increases their monthly outlay.  Statistics from the mortgage banking association show that 85% of homeowners entering a forbearance plan do not make their second payment.

Loan Modification

Another option for the homeowner to retain their home is loan modification.  Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan.  The change allows the loan to be reinstated and results in a pyament the mortgagor can afford.  Homeowners must qualify for modification as they would qualify for a new loan.  Lenders do have HUD guidelines on how they handle the modifications.

Bankruptcy

Generally, there are two types of personal bankruptcy: Chapter 7 (liquidation of assets) or Chapter 13 (repayment plan). In either type of bankruptcy, the court appointed trustee will not have very much interest in a property that has no equity.  The bank will reaffirm its rights and continue on with the foreclosure process in the case of chapter 7.  In the case of chapter 13, the homeowner cannot miss one payment of their payment plan or the lender can continue to pursue the foreclosure process.  The vas majority of Chapter 13’s do not make their scheduled payments, thus frequently resulting in a double whammy on the homeowners’ credit of a Bankruptcy and Foreclosure.

Deed in Lieu of Foreclosure

In the case when there is only one loan encumbering a property, Lender(s) may contact the homeowner to have them deed the property back to them.  Some Lenders will sometimes even offer a little financial incentive to do so.  A deed in lieu can be a great deal for the Lender, as they save time and money, but it is a terrible deal for the credit conscious homeowner as their credit will show a “voluntary” foreclosure e.g. they gave up.

Refinance

This is typically the first thing that homeowners who are behind in payments do.  The reality is that unless there is a lot of equity (30%+) in the property, the chances of a homeowner getting refinanced while currently behind in their payments are very slim.

Foreclosure

When other options are not pursued or short sales are not accomplished, the property will end up in a foreclosure.  The foreclosing Lender takes possession of the property and the original mortgagor has no further rights to the property.  The mortgagor could, however, still have financial obligations to subordinate lien holders after the foreclosure.

Short Sale

The seller can work with specialized short sale groups such as Short Sale Assistance Group who will negotiate with Lender(s) for a discount on the existing mortgage loan amount owed against the property.  A Short Sale can help the seller avoid the damage a foreclosure can inflict and jumps start their credit recovery.  In some circumstances, the seller could still have financial obligations to subordinate lien holders after a short sale, but it is generally significantly less than it would be after a foreclosure if negotiated successfully.  Other alternatives are expensive and time-consuming; the short sale process can turn a near foreclosure into a win-win experience for all parties and provide an avenue for the homeowner to start fresh and potentially be able to obtain another mortgage in as little as 2 years.

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