We know that being in foreclosure means that you are struggling financially, and likely going through some challenging times. In order to simplify the process and answer the question of what options are available to you, we’ve put together the following list of possibilities:
1. Sale: sell the property, pay off your loan, and, depending on the equity, you may net some cash out of the deal. The challenge is to sell the property quickly enough to beat the pending foreclosure sale, which often requires a significant price reduction below fair market value. Click here to discover more information about listing your property with us if you are in this situation.
2. Short Sale: same as number one, except you have to sell the property for less than what is actually owed, which means you have to obtain the approval of all lien holders. Typically, mortgage companies will not let the owner receive any proceeds, but this option is better for maintaining good credit than foreclosure or bankruptcy.
3. Refinance: You may be able to refinance and get a new loan, but generally this is difficult because the owner typically has little equity and poor credit. The new loan likely will have higher payments than the old loan. This is often only considered when the owner needs more time to correct his/her situation, or has some equity, has yet to default and wants to take advantage of the current market’s historically low interest rates.
4. Reinstatement of Loan: This option is paying the lender everything that is owed in one lump sum, inclusive of missed payments, any late fees associated with these payments, foreclosure fees, legal fees and the principal owed during the delinquency.
5. Repayment Plan: A written agreement between you and the lender(s). These often require higher payments than the regular monthly mortgage amount for a period of time until the loan is brought current.
6. Loan Modification: A loan modification involves changing one or more terms of a promissory note. Modifications can include: changing the interest rate, moving from an adjustable rate note to a fixed rate, extending the loan term/maturity, putting delinquent payments “on the back end” of the mortgage balance and even forbearing principal for some period of time. Principal reductions are in theory also possible, but extremely rare.
7. Forbearance Agreement: The lender will allow you a period of time (3-6 months typically) of either low payments or no payments at all. This may work for very temporary hardships.
8. Deed-in-Lieu: A Deed in Lieu is an option in which a borrower voluntarily deeds the property back to the lender, in exchange for a release from all obligations under the mortgage. However, some lenders will try to get the unsuspecting homeowner to deed the property back without forgiving the outstanding debt. A qualified attorney’s review is absolutely essential here.
9. Foreclosure: The mortgage company has the right to foreclose, or take back, the owner’s property to satisfy the debt. This is very detrimental to the owner’s credit, and in many states (including the greater DC region) the mortgage company has the right to file deficiency judgments for any shortages.
10. Bankruptcy: Types vary depending on the situation. This remains on the owner’s credit report for up to 10 years, and from a credit perspective is the worst possible outcome you can have. It does provide the homeowner several months in which to bring payments current, and can quite possibly wipe out all outstanding debts.