Tuesday, July 7, 2009

Options You Have to Avoid Foreclosure

If you are like many people, you may have found yourself in a situation that is leading down the road toward an impending foreclosure. There are several steps that you can take to halt this process:

  1. REFINANCE - While this is a legitimate option, it is fairly unrealistic in the light of this economy where more and more homeowners are finding out that their homes are now not worth what they owe on the mortgage. But for some people, it might work!
  2. REPAYMENT PLAN - This is where the borrower is allowed to catch up on any missed payments by perhaps doubling up on the payments until the account is brought current. Again, while this is an option, it is not very realistic because most people are facing foreclosure because they can't afford even one month's payments let alone doubling them!
  3. FORBEARANCE PLAN- With this option, the borrower may be allowed to roll the missed payments onto the end of the loan term thereby extending the length of the loan. Sometimes this is what the bank does for its loan modification programs. Again, while an option, it is not very realistic because the borrower still has to make the same monthly payment which they couldn't make before. It is definitely more doable if the hardship was just a temporary glitch.
  4. LOAN MODIFICATION- Borrowers are seeing more of these being done and it may definitely help out some of you who are facing a hardship! Many banks are now willing to change the original terms of a borrower's promissory note. Some are reducing the interest rate. Some may extend the length of the loan to 40 years. Some include a combination of the two! Most, however, will not reduce the amount of principal owed.
  5. BANKRUPTCY- This is a court-approved reorganization plan where the borrower's loan may be changed from the original terms based on a loan modification. This is a major hit on a person's credit score and should be the absolute last option to be considered! Some people have even found that after filing for a bankruptcy, they also end up with the foreclosure on their credit score as well! A double whammy!
  6. DEED-IN-LIEU OF FORECLOSURE- This allows the bank to take back the property without all the expenses incurred in a full foreclosure process. This has slightly less of an impact on one's credit score than a bankruptcy. The bank is unlikely to suggest it to a distressed borrower since they already have plenty of non-performing assets on their books right now!
  7. SHORT SALE- This may be the best option for many distressed borrower's out there! There must be little or no equity in the property. Wow! Almost everyone facing foreclosure falls into that category. And the homeowner has to have a legitimate hardship. Well, with unemployment rates rising and home values going down who's not in hardship. Now, if you've gone out to buy a new speed boat or Lamborghini, forget it! You were not being financially responsible. But dare I say, not many people would fall into that category. As more and more people are falling into default, the banks are granting more and more short sales because they already have a whole boatload of REO's on their books. These are known as non-performing assets and affect the bank's ability to lend out money for loans and make money from the interest rates they charge. This means that banks are really trying to get rid of the properties they already own and don't want yours!