According to RealtyTrac, an online marketer of foreclosed properties, foreclosures of all kinds hit another record high in August. Click here to read an article. If you are facing foreclosure, what can you do to keep your home?
First and foremost, contact your lender and try to work something out with them. Here are some options:
REPAYMENT PLAN
When you fall behind on the payments, you’ll talk first with someone from the mortgage servicer’s collections department. The collections department’s aim is to get you caught up, and the sooner the better. The employees there will demand at least a partial payment now and the rest of the payment soon — and a promise that you’ll pay on time each month after you’re caught up.
FORBEARANCE
The loan servicer might agree to suspend payments for a few months, until you get back on your feet financially. A forbearance isn’t for an indefinite period; it might be for one or three or six months, and after that, you’ll be expected to make full payments on time.
Forbearance is most commonly offered to disaster victims and people who have lost their jobs but who feel confident they’ll find well-paying employment quickly. After the forbearance period ends and you’ve resumed making monthly payments, the service will expect you to pay extra each month until you’re caught up. In most cases, you’ll be expected to catch up within a year or 18 months.
LOAN MODIFICATION
A loan modification is similar to a refinance: The lender agrees to alter the loan, but with few or no fees. The lender might reduce the interest rate, change the loan from an ARM to a fixed-rate mortgage, or raise the monthly payment by a few dollars so you pay off the entire loan, including the past-due amount, by the loan’s original end date.
Less frequently, the servicer will tack the missed payments onto the end of the loan. In other words, if you got a mortgage in June 2004 and it’s supposed to be paid off in June 2034, but you miss three payments, the servicer could add those three payments to the back end and push the payoff date to September 2034.
DEED IN LIEU OF FORECLOSURE
This option often is referred to as a “deed in lieu.” The borrower offers to hand over the deed to the property so the lender can take possession of the house and sell it. The lender can refuse to accept a deed in lieu of foreclosure, and it often does, for a couple of reasons. First, the lender has to incur the costs of fixing up the house and paying real estate commissions. A short sale is preferable. Second, the lender inherits any problems with the title. Foreclosure clears away many title problems.
SHORT SALE
In a short sale, you sell the house for less than you owe. You can’t do a short sale without the lender’s permission. With a short sale, you make necessary repairs to the house; pay the real estate commission, taxes and government fees; and give the lender whatever money is left over — a partial payment, if anything. The Mortage Forgiveness Relief Debt Act passed at the end of 2007, makes the short sale process more realistic for some homeowners. Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income.
BANKRUPTCY
A homeowner filing a Chapter 7 Bankruptcy will forfeit property and eliminate any potential deficiency. Chapter 13 Bankruptcy provides the homeowner the ability to cure the default over an extended period of time (30-60 months) while maintaining the current monthly payment. However, this does not change the terms of the mortgage, and since the homeowner cannot afford the current regular monthly payment, they may not be able to afford the current payment plus the delinquency amount.
Before making any decisions about how to proceed if you are facing foreclosure, be sure to get advice from a CPA or financial planner to make sure you have all the facts about how a foreclosure will impact you. A foreclosure on your credit record can have very negative and long lasting effects.
