Your Foreclosure Options
First and foremost, if you can keep your mortgage current, do so. You may qualify for a loan workout option even if your loan is current, so work to keep your credit clean and act quickly to ensure the best outcome. Check with your lender to find out which of these options may be available.
If Your Problem Is Temporary
Reinstatement: Your lender is always willing to discuss accepting the total amount owed to them in a lump sum by a specific date. They will often combine this option with Forbearance.
Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time after which another option must be agreed upon to bring your loan current. A forbearance option is often combined with a Reinstatement when you know you will have enough money to bring the account current at a specific time in the future. The money might come from a hiring bonus, investment, insurance settlement, or a tax refund.
Repayment Plan: You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up.
If your situation is long-term or will permanently affect your ability to bring your account current:
Mortgage Modification: If you can make the payments on your loan, but you do not have enough money to bring your account current or you cannot afford the total amount of your current payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the following ways:
- Adding the missed payments to the existing loan balance.
- Changing the interest rate, including making an adjustable rate into a fixed rate.
- Extending the number of years you have to repay.
- Claim Advance: If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of this loan may be delayed for several years.
Liquidation: You and/ or your lender may decide that keeping your home is not an option. There are a number of liquidation options available (see below).
If keeping your home is not an option...
There are a number of liquidation options you should understand:
Short Payoff/ Short Sale/ Pre-foreclosure sale: If you can sell your house but the sale proceeds are less than the total amount you owe on your mortgage(s), your mortgage company may agree to a short payoff and write off the portion of your mortgage that exceeds the net proceeds from the sale. The bank may take substantially less than they are owed.
Deed-in-lieu of foreclosure: A Deed-in-lieu of foreclosure is a cancellation of your mortgage if you voluntarily transfer title of your property to your mortgage company. Usually you must try to sell your home for its fair market value for at least 90 days before a mortgage company will consider this option. A deed-in-lieu of foreclosure may not be an option if there are other liens on the property, such as second mortgages, judgments from creditors, or tax liens.
Assumption: An assumption permits a qualified buyer to take over your mortgage debt and make the mortgage payments, even if the mortgage is non-assumable. As a result, you may be able to sell your property and avoid foreclosure.
Selling: You may be able to sell your home and keep your equity. The longer you wait to sell, the less equity you will receive. If selling is an option for you, do not delay. A quick sale assisted by a Licensed Realtor will get you the most equity out of your home. Waiting or hoping for more money could cost you every dime of your equity. The sooner you act, the better.
Early Steps to Prevent Foreclosure
You already know a Plan B is important, but what should it include? The first steps to take in creating your plan are to:
Save money Put away some money each month to have an emergency fund in case something unexpected happens, such as losing your job. You should have several months of housing costs saved to protect you from unexpected financial problems.
Reduce expenses Think about where you can save money; for instance, temporarily canceling cable or your gym membership. By paring down to the bare necessities, you may be able to save a significant amount of money. And even if it doesn't seem like enough of a savings to make a big difference, remember - every little bit helps.
Use your assets. Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
Use our budget worksheet to help think about which changes you can make if you find yourself facing financial difficulties.
Plan B
If you've put your Plan B into action or don't have time to implement a plan, and still find yourself having trouble paying the mortgage, you should:
- Call your lender This is the single most important thing you can do. Lenders want borrowers, not properties - they would prefer to see you keep your home. Most will work with you while you get back on your feet.
- Be honest with your lender Different situations require different solutions. It will matter to your lender to know if your financial problems are temporary, for example, due to an injury that puts you out of work for a few months, or are more long term, such as a cut in pay or a layoff.
- Know what you owe Have a clear picture of what your debts are and make your mortgage the priority if you have to make choices. Debt collectors can be very aggressive, but if you can't pay all your debts, make sure your home is protected from foreclosure by paying your mortgage.
- Talk to a housing counselor A non-profit housing counseling agency may be able to help you restructure your bills so that you have an easier time paying them. Additionally, they can help you create a budget that suits your specific needs.
- Contact a housing non-profit A housing non-profit can give you valuable advice. The HOPE National help line, 888-995-HOPE, is dedicated to helping homeowners facing foreclosure 24 hours every day. Spanish - speaking counselors are available.
