When Sellers have difficulty making mortgage payments, they often think that foreclosure is inevitable and their only option. They don't know which way to turn and don't know that they have options. Before resigning to foreclosure, here are some alternatives that might be considered:
- Refinance - the securing of a new loan either to pay off an existing lien or mortgage on the property, or to access the equity. The HOPE program, which is a program available through the U.S. Department of Housing and Urban Development (HUD), may be an option depending on the Seller's credit and other criteria. Another good resource to check out is the Making Home Affordable Program.
- Loan Modification - the Lender agrees to amend the existing mortgage i.e. terms, interest rate, as a means to help the Seller avoid foreclosure.
- Bankruptcy - the Seller liquidates debt
Chapter 7 (Liquidation) Settles personal debt.
Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts within 3 - 5 years.
Chapter 11 (Business Reorganization) A solution for business debt
- Forbearance - the Lender makes special arrangements with the Seller based on their specific financial situation, which may enable them to handle more affordable payments. This arrangement could include payment reduction and sometimes even suspension of payments. The Seller has to prove to the Lender the ability to meet the new payment arrangement.
- Deed in Lieu of foreclosure - this occurs when the Seller gives the property back to the Bank. It's not as easy as a Seller just throwing up their hands and saying, "here just take it". Banks consider the market condition, rather it is a declining market or not, foreclosure timeline and the condition and expenses associated with the home.
- Reinstatement - the Seller can pay off the full amount in default, plus fees.
- Sale - the Seller sells the home without Lender approval. This usually happens if the Seller has equity and assets to be able to cure any deficiencies at closing.
- Short Sale - a short sale is basically comprised of two main components. The first is the listing, marketing and selling of the home. The second involves negotiations between the Seller and their Lender. In some instances this can happen simultaneously. The Seller's goal is to have their mortgage lender agree to accept the proceeds from the sale of the home as payoff of their balance due.
Keep in mind, anyone in this position should always consult with an attorney who specializes in this area as well as tax professional.
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