Unless You Have A Compelling Reason, Losing Your Home To Foreclosure Or Just Walking Away Is NOT A Good Alternative.
How To Decide Between A Loan Modification, Deed-In-Lieu, or a Short Sale To Get Out From Under Your Mortgage Debt.
Simple Answer: If you really want to try stay in your home and avoid foreclosure, you should request a loan modification with your lender. You need to determine what payments you can actually afford. Most homeowners that apply do not get approved because their income does not support the payments the lender requires - or the homeowner gets approved for a new plan but fails to make the new payments because they are still too high. Over 80% of homeowners miss their 2nd payment in a loan modification, and over half still lose their home.
If you want to GET OUT - a short sale or deed in lieu are your options. With a deed in lieu, you get out of the house faster and save yourself the headache of trying to sell. You just get the lender to agree to take the deed back. In some cases, the lender will give you money to help relocate. Most lenders prefer to do a deed in lieu if you occupy the home, and do not have junior liens. The upside is you get the lender to agree to take the home back and be done with it...The downside is the credit impact will be moderate to high with this option. as it is commonly called a "friendly foreclosure" without all the problems a typical foreclosure presents for people.
A short sale is the process of selling your home for less than what you owe on your mortgages. It requires approval from the mortgage holders on an agreed sale amount required to release the mortgages. Unlike what most people and realtors equate a short sale to, it is not simply a "low ball" offer to buy a home. It is meant to reflect the true "as is" value of the home.
A short sale will have less of an impact on your credit most times depending on how many months delinquent you are in your payments. A short sale will allow for you to stay in the home while the file is being reviewed by the lender. If a foreclosure complaint has been filed, that process will continue while being reviewed for a short sale.
The short sale or loss mitigation process is quite detailed, and requires specific documents and forms to be presented and discussed with the lender's loss mitigation department.
Other loss mitigation options available...
- Do Nothing – If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon.
- Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt. New debt is at a normally higher interest rate and there may be a prepayment penalty because of the recent default. With this option, there should be equity in the home.
- Reinstatement – Paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
- Loan Modification – Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment.
- Forebearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
- Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.
- Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applications ask if this has ever happened.
- Bankruptcy – This option can liquidate debt and/or allow more time. I can refer you to a qualified bankruptcy attorney.
– Chapter 7 (Liquidation) To completely settle personal debt
– Chapter 13 (Wage Earner Plan) Payments are made to pay off debts in 3-5 years
– Chapter 11 (Business Reorganization) A business debt solution
- Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property’s value.
- Abandon the Home – Not a recommended option under any circumstances...This is used often by folks that can't get the lender to agree to a "Deed-In-Lieu" or any other payment options when they are facing an extreme financial hardship - and give up.
Advantages Of A Short Sale...
* provides a detailed and organized process for getting your mortgages released for less than you owe
* minimal inpact to your credit profile if handled properly, showing as "settled for less than the original
amount" or "pre-foreclosure in redemption".
* home will sell faster
* lenders do not get stuck with all the legal and overhead costs of taking a home back through foreclosure
* homeowners will avoid foreclosure and can focus on rebuilding their lives
Do You Need Help With A Short Sale?
Call Tom Hinz at:732-822-6870 for a FREE No Risk Consultation, or email at: thinz@apexgroupus.com |
