Foreclosure Solutions
The current U.S. housing market and national financial crisis
has caused untold stress and heartache for many American
families. Foreclosure is one of the most devastating financial
challenges that a family can face and one that many times can be
avoided. The options available to Hendersonville-area residents
for foreclosure are many. Following is a brief explanation of
these solutions, including their benefits and drawbacks:
Reinstatement
A reinstatement is the simplest solution for a foreclosure,
however it is often the most difficult. The homeowner simply
requests the total amount owed to the mortgage company to date
and pays it. This solution does not require the lender's
approval and will 'reinstate' a mortgage up to the day before
the final foreclosure sale.
·
Benefit:
Does not require the mortgage company or lender's approval.
·
Drawback:
Requires that a homeowner be able to pay all back payments,
fines and fees.
Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner
negotiating with the mortgage company to allow them to repay
back payments over a period of time. The homeowner typically
makes their current mortgage payment in addition to a portion of
the back payments they owe.
·
Benefit:
Allows the homeowner to make back payments over time.
·
Drawback:
Requires that a homeowner be in a financial position to pay not
only their current mortgage, but also a portion of the back
payments owed. Some mortgage companies will require a homeowner
to 'qualify' for forbearance.
Mortgage Modification
A mortgage modification involves the reduction of one of the
following: the interest rate on the loan, the principal balance
of the loan, the term of the loan, or any combination of these.
These typically result in a lower payment to the homeowner and a
more affordable mortgage.
·
Benefit:
Reduces the payment a homeowner is required to make on a monthly
basis and may reduce the principal balance of the loan
·
Drawback:
Requires that a homeowner 'qualify' for the new payment and will
often require full documentation. Lender has to be actively
pursuing modifications.
Rent the Property
A homeowner who has a mortgage payment low enough that market
rent will allow it to be paid, is able to convert their property
to a rental and use the rental income to pay the mortgage.
·
Benefit:
Allows homeowner to keep property indefinitely.
·
Drawback:
The issues that can arise with a rental property are many, and
rent often does not cover the full cost of property ownership
and maintenance.
Deed in Lieu of Foreclosure
Also known as a 'friendly foreclosure', a deed in lieu allows
the homeowner to return the property to the lender rather than
go through the foreclosure process. Lender approval is required
for this option, and the homeowner must also vacate the
property.
·
Benefit:
Many times in a successful deed in lieu, the lender will forego
their right to a deficiency judgment.
·
Drawback:
Requires that a homeowner vacate the property, and a deed in
lieu may be reported to credit bureaus as a foreclosure.
Bankruptcy
Many have considered and marketed bankruptcy as a 'foreclosure
solution,' but this is only true in some states and situations.
If the homeowner has non-mortgage debts that cause a shortfall
of paying their mortgage payments and a personal bankruptcy will
eliminate these debts, this may be a viable solution.
·
Benefit:
Does not require lender approval.
·
Drawback:
If a homeowner cannot afford their mortgage payment, a
bankruptcy will only stall—not stop—the foreclosure process.
Bankruptcy can be costly, is damaging to credit scores, and can
only be declared once every seven years.
Refinance
If a homeowner has sufficient equity in their property and their
credit is still in good standing, they may be able to refinance
their mortgage.
·
Benefit:
In some cases, this will lower payments.
·
Drawback:
In today's market, a refinance will almost always raise mortgage
payments, and is an expensive process.
Servicemembers Civil Relief Act (military personnel only)
If a member of the military is experiencing financial distress
due to deployment, and that person can show that their debt was
entered into prior to deployment, they may qualify for relief
under the Servicemembers Civil Relief Act. The American Bar
Association has a network of attorneys that will work with
servicemembers in relation to qualifying for this relief.
·
Benefit:
If qualified, this will lower payments on all consumer debt in
addition to mortgage payments.
·
Drawback:
Must be active military to qualify.
Sell the Property
Homeowners with sufficient equity can list their property with a
qualified agent that understands the foreclosure process in
their area.
·
Benefit:
Allows homeowner to avoid foreclosure and harvest some of their
equity.
·
Drawback:
In many cases today, homeowners do not have sufficient equity to
sell their property without negotiating a short sale (see next
solution).
Short Sale
If a homeowner owes more on their property than it is currently
worth, then they can hire a qualified real estate agent to
market and sell their property through the negotiation of a
short sale with their lender. This typically requires the
property to be on the market and the homeowner must have a
financial hardship to qualify. Hardship can be simply defined as
a material change in the financial stability of the homeowner
between the date of the home purchase and the date of the short
sale negotiation. Acceptable hardships include but are not
limited to: mortgage payment increase, job loss, divorce,
excessive debt, forced or unplanned relocation, and more.
·
Benefit:
A short sale allows the homeowner to avoid foreclosure and
salvage some of their credit rating. This also keeps foreclosure
off the individual's public record, and in many cases will allow
the homeowner to avoid a deficiency judgment. Borrower may
qualify for another mortgage in as little as 24 months (as
opposed to five years for a foreclosure).
·
Drawback:
Short sales can be a trying process in which a homeowner is best
served by contracting with a qualified real estate agent to
guide the way.
This represents only a summary of some of the solutions
available to homeowners facing foreclosure. Please call me today
for a free confidential evaluation of your individual situation,
property value, and possible options.
131 Indian Lake Blvd
Hendersonville, TN 37075
Tennessee
State License #00280299
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