REFINANCE
If the homeowner's credit allows for a refinance and if the homeowner meets the eligibility criteria, an option is 'HOPE for Homeowners' (H4H). HGH is a program available through the US Department of Housing and Urban Development (HUD). You can learn more about it at www.HopeNow.com
As real estate professionals, it is our responsibility to also urge you to visit the Making Home Affordable website. You can find it at www.MakingHomeAffordable.com
LENDER WORKOUT
Lenders often will work with distressed homeowners to help them keep their homes by reducing or rolling back interest rates, forgiving past due payments, adding them to the loan amount, or possibly recasting the entire loan and wrapping all fees into a fixed rate mortgage.
Loan Workout Options
- Forbearance: Lenders may let you make a partial payment, or skip payments, if you have a reasonable plan to get caught up. Tell your lender if you expect a tax refund, a bonus, or a new job.
- Reinstatement: Reinstatement refers to making a payment that covers all your late payments, usually at the end of a forbearance period.
- Repayment Plan: If you can't afford reinstatement, but can start making payments to catch up, the lender may let you pay an additional amount each month until you are caught up.
- Loan Modification: Your lender may agree to amend your mortgage to help you avoid foreclosure. The options include:
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- Adding all the missed payments to the loan amount and increasing the monthly payment to cover the larger loan
- Giving you more years to pay off the loan, lowering the interest rate, and / or forgiving part of the loan, to lower your monthly payment.
- Switching from an adjustable rate mortgage to a fixed rate mortgage, so you aren't exposed to increases in your monthly payment.
- Requiring amounts for taxes and insurance to be included with your monthly mortgage payment so you avoid big bills in addition to your mortgage.
SELL AND BRING CASH TO CLOSING
Although many homeowners today may not have the necessary cash to cure deficiencies at closing, they may have to liquidate assets, e.g., US Treasury bonds, individual retirement acconts (IRA's), to do so. By curing deficiencies at closing, homeowners can avoid the credit damage that a short sale or foreclosure can cause. However, homeowners are strongly encouraged to consult with their finance and tax professionals befoe bringing liquid assets to closing.
DEED IN LIEU OF FORECLOSURE
A deed in lieu of foreclosure occurs when the borrower agrees to trade the property to the lender in exchange for the cancellation of the note. This foreclosure alternative is more likely to work in states where there is a long foreclosure timeline (which is not Texas). The lender will be able to get the property much sooner than going through the foreclosure process, which lessens the probabiliy of the property being in disrepair as well as eliminates the lenders costs to foreclose. Market conditions as well as state specific laws will influence whether and how a lender accepts a deed in lieu of foreclosure. Typically, lenders are less willing to consider a deed in lieu of foreclosure in declining markets. However, in appreciating markets, lenders may accept properties in lieu of foreclosure.
FORECLOSURE
If the homeowner is only weeks away from the foreclosure sale taking place, the homeowner may not be able to pursue any of the previous options, including a short sale. If we are contacted by the homeowner at a late date, we recommend that they contact the lender immediately, and see if there is any way to explore foreclosure alternatives. Also, in some situations, foreclosure may even be in the best interest of distressed homeowners, although doing so will wreak the most damage on their credit.
If the lender will not explore foreclosure alternatives, we instruct our clients to contact their attorney for advice.
DO NOTHING OR WALK AWAY
If homeowners are simply unhappy that the value of their property is less than what they paid or owe, they need to contact an attorney for advice. Walking away from the loan or asking the lender to proceed with a short sale simply because the value went down may not be a viable option and if it is, there will often be additional financial consequences.
