DISTRESSED HOME OWNER OPTIONS
Frequently Asked Questions
We realize that many people are now underwater on their home value and mortgage – the latest statistics say approximately one in four homeowners owe more than what their home is worth. Further, many millions of people are now behind on their monthly payments. Before you throw in the towel and resign yourself to a foreclosure, please take a look below at the options available to you:
1. Sale: The owner sells the property, pays off his loan, and, depending on the equity, may net some cash out of the deal. The challenge, being to sell it quickly enough, often requiring a significant price reduction.
2. Short Sale: The borrower makes an agreement to sell a property for less than what is actually owed, subject to approval of any lien holders. Most mortgage companies will not let the owner receive any proceeds, but this option is much better for maintaining good credit than foreclosure or bankruptcy, and allows for the possibility of a full deficiency waiver. For more information and background, check out the blog www.capitolshortsale.com/.
3. Refinance: The owner may be able to refinance and get a new loan, but generally this is difficult because the owner may have little equity and poor credit. The new loan likely will have higher payments than the old loan. This is often only considered when the owner needs more time to correct his/her situation.
4. Reinstatement of Loan: This option entails paying the lender everything that is owed in one lump sum, inclusive of missed payments, any late fees associated with these payments, foreclosure fees, legal fees and the principal owed during the delinquency.
5. Repayment Plan: A written agreement between the lender(s) and the owner. These often require higher payments than the regular monthly mortgage amount for a period of time until the loan is brought current.
6. Loan Modification: A loan modification involves changing one or more terms of a mortgage. Modifications can include: changing the interest rate, moving from an adjustable rate note to a fixed rate, the loan term can be extended, and in some cases delinquent payments can be simply added to the mortgage balance.
7. Forbearance Agreement: The lender will allow you a period of time (3-6 months typically) of either low payments or no payments at all.
8. Deed-in-Lieu: A Deed in Lieu is an option in which a borrower voluntarily deeds the property back to the lender. The lender may or may not agree to release the borrower from all obligations under the mortgage.
9. Foreclosure: The mortgage company has the right to foreclose, or take back, the owner’s property to satisfy the debt/mortgage. This is very detrimental to the owner’s credit, and the mortgage company has the right to file deficiency suits for any shortages.
10. Bankruptcy: Types vary depending on the situation. Remains on the owner’s credit report for up to 10 years. It does provide the homeowner several months in which to bring payments current, and will likely stave off any deficiency judgment attempts by the lenders. This will NOT however eliminate the possibility of a foreclosure – it simply stops all collection activity by creditors until the property is discharged from the bankruptcy estate.