OPTIONS AVAILABLE TO THE HOMEOWNER

When I meet with homeowners in distress I always like to make them aware of their options. Unfortunately, most times, these options will not work. But, if there is one person out there that’s finds a solution to their problem by discovering something here, then it is worth discussing.

BRING YOUR PAYMENTS UP TO DATE

If your house has not gone to sheriff’s sale yet, you can make up your back payments and reinstate your mortgage. If you have the money available and want to save your house, this might be your best option.

REFINANCE

Unfortunately, I don’t know too many people who have been able to refinance in this market. FHA financing guidelines say that the homeowner has to be current and not over leveraged on the property to refinance. If that were the case, you wouldn’t be looking at foreclosure to begin with. This option will probably work if you still have some equity in your property and still have a decent credit score. For example, if you are in a bad loan with bad terms, such as an adjustable rate mortgage with an interest rate that is exorbitant, this could be a great option for you. Consult a lender or mortgage broker to see if you qualify. If you need a recommendation for one, call me.

LOAN MODIFICATION

Many people have tried this with their lender before calling me. In most cases, the lenders were not willing to re-write the terms of the loan to something that the homeowner could handle. Some of my clients were able to negotiate a loan modification but the interest rates and monthly payments were still higher than they could afford. In a short period of time, they were right back in the same situation that they were in before the loan modification. Most times, lenders will not reduce the principal amount that you owe. They will only adjust the interest rate or payment amount. And, bear in mind that most of these modifications are not permanent plans, but only temporary for a 5-year period. But, if you really want to save your house, I would definitely explore this option with your lender.

PARTIAL CLAIM

Most people have not heard this term. This is a workout solution where FHA pays the delinquent amount on your loan for up to 12 months. Your loan MUST BE AN FHA loan. You lender can tell you if your loan is an FHA. You must be at least 4 months behind in payments before you can apply. And, you must be able to make full payments again, have your hardship resolved and have your financial stability back. This is something that has to be negotiated with your lender and they have to approve it. If you qualify, you will have to sign a promissory note to HUD for the amount that they pay to bring your mortgage up to date. For additional information on this option, go to the hud.gov web site for your state and search for partial claim information or call 1-800-CALL-FHA (800-225-5342).

FOREBEARANCE

This is something that would be offered directly from your lender. This is a repayment plan. The lender takes your back payments plus late fees and adds them to your loan. But they normally do not extend the term of your loan (the length of time to repay). These back payments usually have to be paid in full within 6 – 12 months. This means that in addition to your regular payment, you now have to make an additional payment until the missed payments are paid in full. Let’s use an example. If you are 4 months behind on your payments and let’s say your payments are $1000 per month. If you qualify for this plan, then next month they will consider your account up to date. On the first of the next month they will expect you to make your regular monthly payment of $1000. But, what about the 4 missed payments. Well, they will take those 4 payments of $1000 each, that’s $4000 plus late fees and will allow you to pay that amount back over a 6 – 12 month period. For the sake of argument, let’s say they give you 12 full months to repay. So they take that $4000 and divide it over 12 monthly payments – that’s an additional $334 per month. So now, you have to make 2 payments a month for the next year – first your regular payment of $1000 and the second payment of $334. If you are having trouble making that first payment, how are you going to now make two payments every month. This plan will work very well if you have had a temporary set-back that has been resolved. But if you are still experiencing financial problems, this plan may not be a great option for you. Statistically, about 83% of homeowners who take this option fail to make it to their second payment.

BANKRUPTCY

If you’ve sought out the advice of an attorney, they may have advised you to file for bankruptcy. For some this will be an excellent option. If you file for bankruptcy and can get much of your unsecured debt discharged so that now you have enough money to bring your mortgage up to date and can continue to make your mortgage payment on a timely basis, this could be a good option for you. But, as far as your foreclosure, this is only a delay tactic, it will not stop foreclosure. It only postpones it. As soon as the bankruptcy is discharged or dismissed, your lender will resume the foreclosure process where it was left off. Bankruptcy is a good option if you are able to resume all payments on the house in a timely manner after the bankruptcy. And, if you are planning to do a short sale or if your property goes to foreclosure, it is usually better to file bankruptcy after the short sale or after the foreclosure to include the deficiency judgment. We’ll talk more about what a deficiency judgment in another section.

DEED-IN-LIEU

This is a fancy name for a foreclosure – a voluntary foreclosure. It is sometimes called cash for keys, moving assistance, keys in hand or simply giving your house back to the bank. Your lender may call you and make this offer or have a realtor come to your door and make this offer for them. Your lender will have you sign a document to deed the house to them. In return, they will not foreclose because they now own the house. And, they will even offer you money for the deed and give you a timeframe to move out. They offer this because it allows them to take possession of the house quicker than if they waited out the full foreclosure and redemption period. This saves them money. But what does this do for you. First of all, this option is not available to you if you have a second mortgage or an equity line. On your credit report, a deed-in-lieu can have the same negative effect as a foreclosure. Credit people will look at this as the fact that you had a problem and didn’t deal with it. You cut bait and ran. So even though you might think that you did the right thing, it can adversely affect your credit, just like a foreclosure, for many years to come. As I said, it is considered a voluntary foreclosure. And, the lender still has the right with the deed in lieu to pursue a deficiency judgment. That means that they can come after you in the future to collect the difference between what you owed on the house and what they were able to sell it for. In fact, they can even add on to that deficiency amount the amount of money that they gave you to vacate the property.

SELLING YOUR HOUSE

For many, this decision is easy. For others, it will be a very difficult decision to make. But it can often be your best option. If you no longer can afford your house and have exhausted all other options, this can be the very best decision of your life. And, YES, your house can be sold for less money than what you owe your mortgage company. This is called a Short Sale. It can save you from foreclosure and have far less damage to your credit score than a foreclosure. In Michigan, even if your house has already gone into foreclosure but you are still in the redemption period, a short sale can be done.