This post has great information. One thing I would add, though, is that while retention options (loan modification, forbearance, etc.) are being pushed by banks, mortgage lenders and servicers more than ever they are rarely good financial options for distressed borrowers. The reasons these retention options are bad financial options are below:
- They don't usually solve the negative equity (i.e. underwater) problem.
- They are usually short term "solutions" that last a few months to 5 years.
- After they end they still leave the borrower/homeowner in bad financial condition because modified/reduced payments are not the same as full payments from a credit standpoint and in most cases the borrower will still be underwater at the end.
When it is all over the borrower is still in a bad financial situation since they will most likely have to short sell their house after the retention option ends, which will just drag out the financial damage. My advice is that when you have a chance to get a bad financial asset (such as an underwater house) off of your financial books do it and don't look back. I know that keeping that house is an emotional situation, but rarely do sound financial plans come as a result of emotion being the driver in the decision making process.
Today we want to pick up the conversation with some alternatives to foreclosure. This list is just part of our overall Foreclosure Resources that are available for free on our website.
Other Alternatives to Foreclosure
If you owe more on your property than it is currently worth, by negotiation with your lender you can sell the property for a price less than you owe and consider this as satisfying your debt. This a common solution.The Short Sale Process
Government Home Owner Assistance Programs
The rising number of foreclosures in this country is simply too big to ignore. That is why a number of government-backed program have been created that aim to streamline foreclosure avoidance options.Available Government Programs
A reinstatement is the simplest solution for a foreclosure, but often the most difficult to achieve. The homeowner simply pays the total amount past due (including late fees) to the lender.
A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these.
Also known as a "friendly foreclosure," a deed-in-lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process.
A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back-payments over a period of time.
Rent the Property
This option does not require lender approval, but does require the homeowner's ability to rent the house for enough money to cover the monthly mortgage payment.
Servicemembers Civil Relief Act
If a member of the military experiences financial distress due to deployment-and their debt was entered into prior to deployment-he or she may qualify for relief under the Servicemembers Civil Relief Act.
Many believe bankruptcy is a "foreclosure solution," but this is only true in some states and situations. Entering bankruptcy can be a risky and costly process. Be sure to seek the advice of a qualified bankruptcy attorney when pursuing this as an option.
Refinancing means you will acquire a new loan based on your current credit standing. If you have already missed mortgage payments, your credit score may make it difficult to find a loan with cheaper payments. Knowing that foreclosure can be avoided gives you the ability to develop a realistic strategy to plan for a future that is both financially stable and full of hope