Navigating the Foreclosure Landscape: Solutions and Insights
 

The current U.S. housing market and national financial crisis have caused immense stress and heartache for many American families. Foreclosure is one of the most challenging financial hurdles a family can face, but it is often avoidable. Here, we explore various foreclosure solutions, along with their benefits and drawbacks:

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​​​Reinstatement

A reinstatement is the simplest solution for foreclosure but can be the most challenging. The homeowner requests the total amount owed to the mortgage company and pays it in full. This solution does not require the lender’s approval and will ‘reinstate’ the mortgage up to the day before the final foreclosure sale.

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Benefit: Does not require mortgage company or lender approval.

Drawback: Requires the homeowner to pay all back payments, fines, and fees.

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Forbearance or Repayment Plan

In a forbearance or repayment plan, the homeowner negotiates with the mortgage company to repay back payments over time. The homeowner typically makes their current mortgage payment plus a portion of the back payments owed.

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Benefit: Allows the homeowner to make back payments over time.

Drawback: Requires the homeowner to afford both current mortgage payments and back payments. Qualification may be required.

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Mortgage Modification

A mortgage modification reduces one or more of the following: interest rate, principal balance, loan term, or a combination. This typically results in a lower monthly payment and a more affordable mortgage.

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Benefit: Reduces monthly payments and potentially the principal balance.

Drawback: Requires qualification and full documentation. Lender must be actively pursuing modifications.

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Rent the Property

A homeowner with a low enough mortgage payment can convert their property to a rental and use the rental income to pay the mortgage.

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Benefit: Allows the homeowner to keep the property indefinitely.

Drawback: Rental issues may arise, and rent often does not cover all property costs and maintenance.

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Deed in Lieu of Foreclosure

Also known as a ‘friendly foreclosure,’ this option allows the homeowner to return the property to the lender instead of undergoing foreclosure. Lender approval is required, and the homeowner must vacate the property.

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Benefit: The lender may forego their right to a deficiency judgment.

Drawback: Requires the homeowner to vacate the property, and it may be reported as a foreclosure to credit bureaus.

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Bankruptcy

Bankruptcy is sometimes marketed as a ‘foreclosure solution,’ but this is only true in certain states and situations. If non-mortgage debts are causing a shortfall in mortgage payments, personal bankruptcy may eliminate these debts and offer a solution.

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Benefit: Does not require lender approval.

Drawback: If the homeowner cannot afford mortgage payments, bankruptcy will only      stall—not stop—the foreclosure process. It is costly, damages credit scores, and can only be declared once every seven years.

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Refinance

If the homeowner has sufficient equity and good credit, they may be able to refinance their mortgage.

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Benefit: Can lower payments in some cases.

Drawback: Refinancing often raises mortgage payments and is an expensive process.

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Servicemembers Civil Relief Act (Military Personnel Only)

Active military members experiencing financial distress due to deployment may qualify for relief under the Servicemembers Civil Relief Act if their debt was incurred before deployment.

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Benefit: Lowers payments on all consumer debt, including mortgage payments, if qualified.

Drawback: Must be active military to qualify.

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Sell the Property

Homeowners with sufficient equity can list their property with a qualified agent familiar with the foreclosure process.

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Benefit: Avoids foreclosure and allows the homeowner to harvest some equity.

Drawback: Many homeowners lack sufficient equity to sell without negotiating a short sale.

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Short Sale

If a homeowner owes more than their property is worth, they can hire a qualified real estate agent to market and sell the property through a short sale negotiation with the lender. The homeowner must demonstrate financial hardship to qualify.

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Benefit: Avoids foreclosure and salvages some credit rating. Keeps foreclosure off public record and may avoid a deficiency judgment. The borrower may qualify for another mortgage in as little as 24 months.

Drawback: Short sales can be a trying process, best navigated with a qualified real estate agent.

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This represents a summary of some of the solutions available to homeowners facing foreclosure. Your situation is unique, and I will take the time to understand your current needs, to identify and help you make the best informed decisions for the best opportunities available for you.

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Please fill out the contact form, call or email me today for a FREE, confidential evaluation of your individual situation, property value, and possible solutions.