Are there any Alternatives to Foreclosure?
During the tough economic situation in US between 2008 and 2011, a large number of people lost jobs. Among those were also the ones, who had bought homes during peak of the market with high payments per month. The economic downturn dis two things to them:
- Loss of employment and long tail to search new employment
- Decrease in value home well below the original purchase price
Such homewoners had their self-confidence broken. They could not make mortgage payments timely or if they did, their savings were bleeding. So they started searching options to make a healthy decision for themselves and their loved ones.
At the same time real estate investors and professionals, saw it as an opportunity and introduced a creative financial vehicle to make quick large sums of money from this situation. In fact a number of fraudulent "realtors" surfaced the market that actually "helped" people foreclose their homes against the will of these homeowners. A large number of Internet stories emerged in this context and therefore more awareness got created what should one do if foreclosure situation arise. Well the text below will help you understand that better:
I am a first time home buyer and i bought my home in 2008 just near the downturn. Given the economic situation at that time and hearing so much on media about foreclosures, I spent a lot of time looking at advice from regulators, banks, following forums, and getting informed of the process in case I am in the same boat. Luckily I survived however went through a lot of emotional and rational thinking on this and felt I should share this information with everyone else. Nonetheless, this is a ready reference documentation for my future reference too. Let us understand the process. however before I get into details, my deeper advice
DO NOT FORECLOSE YOUR HOME, IF YOU HAVE EVEN A SLIGHTEST OPTION.
The tough times come and pass by. Staying resilience would make your succeed. In 2012 and later, economy recovered and job markets got better. And I met people who thought foreclosure was not a good idea. As housing prices went beyond 2008 levels and mortgage rates also started rising. Those people are now unable to buy a newer home and would now need to wait. Also their credit profile is impacted and foreclosure is going to stay for 7 years on their credit records from the date of foreclosure.
So what are the options? First thing you need to pay immediately attention to:
If you are unable to make mortgage payment next month or in next 2/3 months, or have not made recent mortgage payment, I strongly advice to contact your lender right away and have discussion. When you dial 800 number of your mortgage lender, ask for or press buttons to reach "loss mitigation" department. Take your time to clearly explain you financial situation to them and ask for alternatives that are supported by your lender.
Make sure to call them before losing to make any payment or even if you are delayed. It would become difficult to negotiate and ask for assistance if you are close to "missing the payment".
To understand the details of the options available to you, you have to estimate your situation reasonably. And depending that situation, different alternatives might be available by banks. Very likely you are in one of the two most common situations:
Situation No 1: Short Haul
You are on the verge of missing your payment for the very first time since you bought home, however within a month or so you can resume to normal situation.
You may have one of the following two options:
Forbearance: If lender offers forbearance, it means, lender is allowing you a delayed payment that would give you time to recover and then you can again continue as you were earlier. The technical term used here is "forbearance". Under this option, you can live for short period time without making payments. The understanding here with lender is that you would bring your account to current once you are back to normal mode within an agreed period of time.
Repayment: In other situations lender may provide you with a modified repayment plan (technical term is "repayment") for a short period of time. For example, lender may add the certain amount of the first missed payment onto each of the next subsequent two/three payments with an understanding that you would be in a situation to make the payment..
These two options are useful when you have short-term financial problems only like sudden expensive repair of home or car, or a sudden medical expense that makes it too difficult to pay your mortgage for one or two months.
Situation No 2: Possible Long Haul
You are behind on your two or three payments for the very first time due to financial hardship, and are looking for the job and have not talked to your lender yet.
You may have one of the following two options:
Loan modification: This option is allowed for those who are in tight financial hardship and their situation is not changing even if they get forbearance or repayment privilege. A tight eligibility criterion is needed to qualify for loan modification. If you do qualify for loan modification, your period of repayments may increase or interest rate may be lowered. Also depending upon the situation you balance payments would be rolled in and new payments calculated.
Short Refinance: This is like a short sale to your own self. Depending upon your situation, you lender may be ready to provide you a "short refinance," too. In such situation, the lender agrees to refinance a part of the loan (equal to present day fair market value) into new loan and write off the rest. This option allows lender to keep making money though at lower rate. if you would calculate it would be basically forsaking couple of years of interest for them while still getting the principle they paid. If I calculate what you would pay them in 30 years, it would be like financing your original amount at a lower rate of interest. Not very easy to get, but you could be luck. Try hud.gov to learn more about loan modifications through short refinance.
There are also other ways but may not sound normal and may not be promising. Do get help from your friends, family or real estate broker you know personally to understand other options. Also visit the website for U.S. Department of Housing & urban Development. There are new programs and options become available from time to time and this site is primary source of such programs.
In case, none of the above works for you, unfortunately, then you may have to undergo the painful process of short-sale or foreclosure. Both ways are going to be unpopular to you for rest of your life and pain. I pray to the God that none of you and other readers like you of this article has to go through this.
Thanks for spending time on reading. If you have any questions, please feel free to post questions under comments section below.