Foreclosures have become a growing part of today’s economic reality. A combination of greedy lending and irresponsible home buyers have created a lose-lose scenario for everyone involved. So what should the train of thought be for a homeowner who is behind on their mortgage payments? The longer you wait to get help, the harder it will be. The simplest way to prevent a foreclosure is to pay off the arrears. What many people do not realize is that once you are 30 days or more behind, the mortgage company will not accept a partial payment. So the next idea is to refinance and pay off the mortgage by obtaining a new one from another lender. Unfortunately, due to the credit crunch and more strict lending guidelines, it is difficult or impossible to obtain a new mortgage once you have gone 30 or 60 days late on your payment.
Luckily, there is one option called FHASecure. If the setback was temporary are you are only 1-2 months behind you may still qualify for an FHASecure mortgage. The FHASecure program was made available to help families whose mortgage payments had increased and as a result became delinquent on their payments. The downside to this program is that the guidelines can be strict and you must be able to fully document all of your income in order to qualify.
If you cannot refinance into a new mortgage than there are still several strategies which may allow you to avoid a foreclosure:
Here are some of the most common:
1) Loan Modification
Loan Modification – 99% of all “A” type lenders and 70% of sub-prime lenders (with high interest rates) will negotiate a loan modification where most of the delinquent payments and foreclosure fees are either wiped out or added onto the back end of the loan. Payments can remain approximately the same. In most cases the interest rate will be reduced permanently.
2) Interest Rate / Payment Rate Reduction
With the increase of interest rates on home loans many homeowners with adjustable rate loans are faced with mortgage payments they can no longer afford.
In order for this to happen the lender must agree that it is better to lower the homeowner’s payment by lowering the interest rate or payment rate by creating a payment plan the borrower can afford, than to take the home with a foreclosure sale and lose money on the re-sale. Keep in mind lenders lose money on bank owned properties as it will sell for less than market value, and they must pay a commission to a Realtor; and closing cost plus the cost of holding the property while they wait for a sale in a market that is depreciating.
3) Principal Reduction
When a property is upside down and the homeowner is facing foreclosure, the homeowner has more leverage than they may realize against their lender. If successful this strategy will wipe out large portions of principle. Typically 50-80% on seconds.
In today’s market, a lender of first lien holders will sometimes lower the principle amount to the present market value. (ex: a homeowner owes $600,000 on first but the appraised value is $500,000. Lender may lower the loan amount to $500,000.) That is a $100,000 reduction in principle for the client.
4) Deed in Lieu of Foreclosure
Under many conditions lenders will accept the property back from the borrower as full payment in order to save the time and expense of going through the foreclosure process.
Note: A deed in lieu will also prevent the lender from filing a 1099 on their loss which is regular income to the borrower.
One of the biggest mistakes many homeowners make is trying to go at this problem alone without any help. All of these strategies require the guidance of a loss mitigation specialist or someone who has experience in negotiating with banks & lenders. While we do not handle this in our office, if you are in need of a good referral we will be happy to reccommend the service of a professional who can help. You can call our office at 1-888-456-5635.
Your Debt & Finance Specialist