Foreclosure & Alternatives Law
A Plain Language Explanation of Your Options for Avoiding Foreclosure
Whether you’re in foreclosure now or worried about it in the future, understand that there may be practical ways you can avoid foreclosure. Today, lenders are more willing than perhaps they have ever been to help you stay in your home and be able to afford your payments. The most common methods used to bring loans current are described below:
Bring Your Loan Current – Reinstatement: If you’ve missed payments on your mortgage and are in “default,” the easiest way to cure it is to pay the lender the total amount outstanding. This includes missed payments, any late fees that may have been assessed and any other fees which the lender charges as a result of your def. The reinstatement period varies from state to state. In some states, you have the legal right to reinstate your loan even up until days before your property is sold at public auction. However, do not delay – contact your lender for information as soon as possible.
Work Out a Repayment Plan with Your Lender: A repayment plan is a written agreement between you and your lender to help you make up missed payments. The repayment plan may call for you to make your regular monthly mortgage payment, plus an extra amount, each month for a period of time in order to make up the missed payments until the loan is brought up-to-date. Other options include continuing to make your monthly minimum payments and agreeing to make a lump sum payment on a certain date to repay the amount past due. Make sure you only agree to a repayment plan you can actually honor. If you fail to meet the terms of this agreement, your lender will be less likely t work with you in the future.
Loan Modification: When your lender agrees to a loan modification, the terms of your mortgage actually change. Modifications may be made to reduce the interest rate of the mortgage, change the mortgage product (from an adjustable rate to a fixed rate, for example), extend the term of the mortgage or capitalize delinquent payments (add delinquent payments to the mortgage balance). Modifications are not easily granted, but if there are strong, justifiable reasons for the request then a lender may be willing to modify your loan.
Forbearance: The lender may allow you to suspend your payments for a period of time (3 to 6 months generally) or make lower monthly payments for a period of time. To make up for the lost payments, either the term of the loan will be extended (adding the missed payments to the life of the loan) or the payments will be higher upon reinstatement to make up for the unpaid amounts.
Special Forbearance: (Applicable to FHA-insured loans only) The lender may allow partial payments for up to 18 months to allow the borrower to get back on track. The lender may also offer “partial claim”, or advance funds, to help you become current.
Refinance: This will usually not be an option if you are seriously delinquent on the current mortgage (more than 3 payments late). If you are current, however, and there is equity in the property, this might be an option. You may be able to get a new mortgage with a different interest rate, or an extended term.
Second Mortgage (Home Equity Loan): Even if you are seriously delinquent on your mortgage, if there is enough equity in your home your lender may grant you a second loan on your home. Not generally feasible when you are having trouble making first mortgage payments – a higher interest rate and another payment would only be compounding the problem. May be used to eliminate consumer debt.
Short Sale: If you owe more on your mortgage than what you can sell your home for, but you have a willing buyer at a lower price, your lender might agree to a “short sale.” This is where the lender agrees to accept the sales price as payment-in-full of your mortgage, even if its less than what you actually owe.
Bankruptcy: While this may seem to be the most unpleasant option, it may allow you to save the property. A Chapter 13 bankruptcy may help you save your home from foreclosure if all other options have failed.