ALTERNATIVES TO FORCLOSURE
ALTERNATIVES TO FORECLOSURE Resource Guide
Even if you haven’t yet missed a mortgage payment, but are worried you might fall behind soon, now’s the time to take action. You may be eligible to refinance or modify your mortgage loan, lowering your payment and making it more affordable. Or, if you’ve missed payments and find yourself buried under late fees and past-due amounts, you may qualify for a temporary (or permanent) solution to help you get your finances back on track and avoid foreclosure.
the forbearance period, you begin making regular payments as well as an additional amount to pay off the past-due amount. Active duty military service members may be eligible for special mortgage relief assistance. •
Overview of Solutions If You Want to Keep Your Home •
Reinstatement. You pay your lender the full amount due, including all back payments, fines and fees. Although this is often difficult, you may get a new job, get assistance from family, cash-in other assets, etc. Homeowners can reinstate a mortgage up to the day before a final foreclosure sale, and it doesn’t require lender approval.
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Rent the property. For homeowners who have mortgage payments low enough that a rental payment allows the loan to be paid. With rental properties, however, many expenses, taxes, insurance and landlord responsibilities are a factor, and rental income may not cover the full cost of ownership and maintenance. If a solution for you, you can keep the property indefinitely while living somewhere else.
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Loan modification. If you can make payments on your loan, but don’t have enough money to bring your account current, your lender may change the terms of your original loan to absorb your delinquent payments and make the payments more affordable. Your loan could be permanently changed by adding the missed payments to the back end of the existing loan balance, or lowering the interest rate or making an adjustable rate fixed, or extending the number of years you have to repay your loan. Homeowners must qualify for the new payment and requires full documentation. Because of additional debt such as credit cards, car payments, medical bills, and student loans, some people do not qualify for a loan modification.
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Refinance. If you have enough equity in your home and your credit is still in good standing, you may be able to refinance an unaffordable loan and achieve lower payments. With today’s housing values and the costs of refinancing, a homeowner must be sure a refinance is a possible solution. If you purchased your home with little or no money down or your home has gone down in value, you may not quality for a refinance.
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Forbearance. A forbearance agreement means you pay only a portion of your regular payment -- or no payment at all -for a specific period of time based on your current financial situation. This temporary solution provides time to save money, pay off other bills, find employment or additional employment, or recover from injury or illness. At the end of
Bankruptcy. In some situations, and in some states bankruptcy stalls the foreclosure process (typically for six months) and may allow you to live in your home and repay your lender under different terms. If a homeowner has significant non-mortgage debts that prohibit you from making your mortgage payment -- and a personal bankruptcy will eliminate these debts -- bankruptcy may be an option. The problem is most people that go through bankruptcy have not solved their problem. If you cannot afford your home, you may end up in foreclosure again within a short time. Bankruptcy is expensive, damages your credit and can only be declared once every seven years.
Overview of Solutions If You Cannot Keep Your Home •
Short sale. If you owe more on your home than the home is worth, and don’t want to declare bankruptcy (because it won’t solve your financial problem), you can hire a short sale real estate specialist to market the property and negotiate a short sale agreement with your lender or mortgage servicer. A short sale allows you to avoid foreclosure and minimize the damage to your credit score. You may avoid a deficiency judgment if your lender forgives your mortgage debt in its entirety according to the terms outlined in The Mortgage Debt Relief Act of 2007. Also a short sale keeps a foreclosure off your credit record. Fannie Mae has reduced the mandatory waiting period to establish credit history after a short sale to 2 years. This waiting period after a short sale is lower than the required 5-7 years following a foreclosure.
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Deed-in-lieu of foreclosure Deed-in-lieu of foreclosure means you return the deed and house to the bank instead of facing foreclosure and walk away. Lender approval is required. If you have more than one mortgage this is not an option for you. Some lenders want to see the house on the market for at least 3 months before they consider accepting a deed in lieu. By voluntarily transferring the deed, you save your lender tens-ofthousands of dollars in foreclosure proceedings. Fannie Mae has reduced the mandatory waiting period to establish credit history to a minimum of 4 years. This waiting period after a deed-in-lieu of foreclosure is lower than the required 5-7 years following a foreclosure. Although a deed-in-lieu may have less impact than an actual foreclosure on your ability to establish homeownership in the future, if you are going to cooperate with your lender and take a proactive approach, a short sale is generally the better option.
• Foreclosure. A foreclosure is the legal process where your mortgage company obtains ownership of your home (i.e., repossess the property). A foreclosure occurs when the homeowner has failed to make payments and has defaulted or violated the terms of their mortgage loan. Consequences of a foreclosure are as follows: • Eviction from your home—you’ll lose your home and any equity that you may have established • Stress and uncertainty of not knowing exactly when you will have to leave your home • Damage to your credit—impacting your ability to get new housing, credit, and maybe even potential employment, for many years • May owe a deficiency balance after the foreclosure sale • Lose any relocation assistance or leasing opportunities that may be available with other options • Forfeit ability to get a Fannie Mae mortgage to purchase another home for up to 7 years (Fannie Mae guidelines)
Reverse Mortgage A reverse mortgage lets you tap into the equity of your home, but includes ongoing responsibilities to maintain the property and pay expenses like taxes and insurance.
If you’re age 62 or older, you can receive money from your mortgage company by borrowing against the value of your home through a reverse mortgage. The payments you receive along with accrued interest and other charges increase the loan’s balance and decrease your equity in the property.
Most reverse mortgages are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. As long as you live in the home as your primary residence, maintain the home, and pay homeowner’s insurance, property taxes, and homeowner’s (sometimes referred to as “HOA” fees) and/or condo association dues (if applicable), the loan does not have to be repaid.
If the property is sold or the last surviving borrower no longer occupies the property or passes away, the loan becomes due and payable. Usually, the home is sold to repay the loan and, if FHA-insured, FHA pays for amounts not fully covered by the sale proceeds.
Beware of Foreclosure Rescue Scams Real Help is Always Free! - Foreclosure rescue and mortgage modification scams are a growing problem that could cost you thousands of dollars – or even your home. Scammers will make
promises that they can’t keep, such as guaranteeing to “save” your home or lower your mortgage payments, usually for a fee, sometimes even claiming that they have direct contact with your mortgage company.
• Beware of individuals or companies that offer money-back guarantees or insist on upfront fees and can only accept payment by cashier’s check or wire transfer.
Tips to Avoid Scams - If you’re struggling to pay your mortgage, keep the following tips in mind:
• Beware of individuals or companies that advise you to stop making your mortgage payments or discontinue contact with your mortgage company.
• Beware of anyone seeking to charge you in advance for mortgage modification services. In most cases, charging fees in advance of a mortgage modification is illegal.
• Do not sign over the deed to your property to any individual or organization unless you are working directly with your mortgage company to forgive your debt.
• Only your mortgage company has the discretion to grant a loan modification. Therefore, no third party can guarantee or pre-approve your mortgage modification application.
• You can apply for mortgage assistance on your own or with free help from a HUD-approved housing counseling agency. For more information and help with your application, call a housing counselor at 888-995-HOPETM (4673). To find a HUD-approved housing counseling agency near you, access HUD’s database for Foreclosure Avoidance Counseling.
• Beware of individuals and companies using mail and/or phone solicitations that claim to be from your mortgage company, but insist that payments be sent to an alternate contact or address that is different from the information in your mortgage statement. • Paying a third party to assist with your application may not improve your likelihood of receiving a mortgage modification. Beware of individuals or companies that ask you for payment, tout their success rate. In particular, avoid any business that: • pressure you to sign papers you haven’t had a chance to read thoroughly or that you don’t understand; • offer to buy your house for cash for much lower than the selling price of similar houses in your neighborhood.
Additional Foreclosure Resources: • Call 888-995-HOPE (4673) to report a suspected scam and to get mortgage help. • The Federal Trade Commission (FTC) is the nation’s consumer protection agency. If a business doesn’t make good on its promises or cheats you out of money, the FTC wants to know. File a FTC complaint today. • Submit a CFPB complaint online with the Consumer Financial Protection Bureau (CFPB), or call 1-855-411-CFPB (2372).
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