Discover Your Options
The realization that your home may have become a financial impossibility is not easy to accept. However, while foreclosure may eventually be the final alternative, it is good to know all your options to keep your home or at least ease the burden while finding other living arrangements. The loan modification programs or refinancing your exiting mortgage are typically the first step which have proved to be fairly ineffective for most homeowners with the inability to make current payments. However while the overall statistics have not been very encouraging, contacting your mortgage lender is an important first step to at least finding out where you stand in your current situation. The reality is that only a fraction of the participants have actually received a true modified loan that lowered there payments and allowed them to keep their homes. While it is not very encouraging to the overall numbers, there are thousands of homeowners that did work with a program and found a way to stay in their home. The steps to work through these programs are sometimes frustrating and can be very emotional, but try to understand that your mortgage note on your real estate is a financial agreement that was created in a business transaction. This transaction was created by a lender and yourself. The lender is now doing whatever makes the most financial sense for themselves, you must do the same. The emotional side needs to take a back seat to what is important for your current and future moves in regard to your personal financial portfolio. It may seem that the easiest alternative at the time is just to walk away, throw away the mail, and stop answering the phone. This unfortunately will only result in a long drag on your credit. If you look at the overall grand scheme of it all, there will be a day that perhaps you may want to buy another home among other types of purchases. Many home lenders currently will make exceptions to a one time glitch in your credit history if it is explainable, hardships are often explainable. Additionally, even a foreclosure or bankruptcy are allowed after two to three years from release with current good credit and work history since that discharge, although you will be regarded as a more reliable credit risk if this can be avoided . Therefore assess your personal situation, decide on your best financial plan (not just your lenders plan), and then work toward that goal. The best first step regarding credit history would be to avoid foreclosure if it is possible, work with your lender and do NOT make promises that you cannot keep. If you know that you will be back on your financial feet within a few months then simply call your lender and explain that you can only pay a certain amount that month or few months. Often a lender will work with you and sometimes they may even give a one time exception to miss a monthly payment which will be added to the end of your loan. If a more permanent hardship has caused your delinquency of payment then perhaps it is time to look into a ‘short sale’ or ‘deed in lieu’ of foreclosure. Discover and exhaust all of your options before making a uneducated decision. It may very well make the difference in your ability to put a roof over your head and avoid unnecessary financial consequences.
Deed in Lieu of Foreclosure (DIL)
A deed in lieu of foreclosure is an agreement between mortgage lender and property owner that the real estate will be returned to the lender in exchange for payment of the note. The property typically needs to be of at least fair market value (worth what other homes are selling in the area) in order for the lender to accept this arrangement. Although many lenders will take into consideration that the alternative would be a foreclosure process which is a long and expensive procedure and accept a property that is worth less than the current mortgage note.
A short sale is an agreement between the mortgage lender and property owner that the real estate will be sold for less than the amount of the current loan. If the property sells then the difference of the unpaid balance will still be paid by the former owner. This may not sound like a wonderful alternative however the damage that is created to your credit will be much less severe than an actual foreclosure. This in turn may create the ability to purchase another home much sooner that to fore go a foreclosure proceeding. (A foreclosure will typically stay on a credit report for 10 years)
Deed for Lease
If your loan is owned by Fannie Mae the deed for Lease option allows the property owner to give the note back to the mortgage company and then more reasonable terms may be created to lease the property back from the lender while trying to find a more affordable housing situation. This program requires an owner to be denied a loan modification and yet still have the ability to pay monthly rent which is typically a fair amount.
A technique regarding foreclosure that should be decided with great care and consideration is the protection associated with filing personal bankruptcy. Bankruptcy is a legal way to allow you to have a new financial start and once filed any foreclosure proceedings must stop. While this may not avoid the property from being foreclosed eventually, it does give you a chance to regroup and perhaps eliminate some or all of your debt which in turn could allow you to rebuild a financial plan and keep your home. It is highly recommended to consult a professional attorney if considering bankruptcy.