Knowing Your Options
Option – (op-tion) (noun) – the power or right to choose : freedom of choice :
Here are your Options to Avoid Foreclosure. Be careful to seek consultation from so-called “Professionals”. Only seek professional Advice from Qualified Professionals. Beware of any Scams that involve Paying a Fee or Signing over your Deed.
Refinance – This is available through Government Programs only with a current Fannie Mae or Freddie Mac loan up to 125% of current home value. It will It will allow you to get your interest down to current market rates.
Pros – You will have a New More Conservative Loan with a Lower Interest Rate.
Cons – It is very difficult to qualify since values have dropped more than 50% in the CA market. You must have very good credit and verifiable income.
Forbearance/ Reinstatement – A Forbearance Agreement is a written agreement with your Mortgage Company in which you arrange to keep your home. The agreement will normally include two primary elements:
1. The borrower’s promise to remain current on the mortgage going forward.
2. Some plan for making up the delinquent interest and other charges.
Pros – You will be able to Keep Your Home.
Cons – It may mean Making Additional Payments to the mortgage company, or the Delinquent Amount could be added to the Loan to be Paid Later. Unfortunately, all the terms of the original note typically remain the same.
Why would you Want to Add More Negative Equity to a Home that is already Underwater? Not very Smart.
Loan Modification – An agreement between the Bank and a Borrower that lays out a specific Loan Payment Plan. The Foreclosure Action is Stopped as long as the Borrower meets the New Terms of the Agreement. The Payment Plan often involves Lowering the Interest Rate to between 2-3% (Temporarily or for the remaining life of the loan), or Lengthening the Term of the Loan to 40 years. On very Rare Occasions Maybe Principal Reduction. Any Late Payments are usually added to the “Back” of the loan which effectively Lengthens the Life of the Loan. Most lenders will offer Modifications under the HAMP Program and also offer additional Internal Programs for those that Do Not Qualify for this Program.
Pros – You will be able to Keep Your Home.
Cons – The primary downside is that you continue to make Reduced Payments on a home that is Worth Less than the Value.
Most Loan Modification are Band-Aids at Best. Also we have seen Many Loan Modifications Fail in the first Couple of Years.
Short Sale – A Short Sale is an agreement with the Lender(s) to accept less than the amount owed by a borrower by “Short Selling” the property to a non-related third party. When a borrower is faced with a hardship, has fallen behind (or is likely to fall behind) in the mortgage payments, and the home cannot be sold for the amount owed to the lender(s), a Short Sale agreement may be an alternative the Lender(s) accepts a payoff of an amount allowable by the market conditions. Lender(s) then receive the complete proceeds of the sale and generally discharges the remaining debt.
Pros – You can negotiate to Eliminate the Debt Responsibility on the Loan(s). New Senate Bill SB 931 will protect the Homeowner on a Primary Residence from a Lender(s) to come after them with a Deficiency Judgment. Will also allow Homeowners to move ahead with their lives. Less Impact to Credit Report. Typically with a Short Sale the Homeowner’s Credit will Correct within 2-3 years.
Cons – Negotiation timeline can take several Months. Most of the time Requires full Financial Disclosure and a Hardship. In some cases 2nd Lien Holders can be Difficult to deal with due to 1st Lien Holder’s guidelines.
Although Short Sales take time to complete they can be done with the Help of Qualified Professionals. Experience is Key not everyone has the Ability to properly Negotiate with Bank Negotiators. It takes Time, Know-How and Patience. Short Sales can be a good thing to relieve Debt and Stress.
Deed In Lieu Of Foreclosure – This is an agreement in which the borrower will transfer all interest in a property to the lender to satisfy a loan that is in default and avoid foreclosure proceedings. The primary benefit to the lender is that they take the property without incurring foreclosure costs.
Pros – The primary benefit to the borrower is that they are relieved of the debt without foreclosure and it also less of an impact to their credit.
Cons – This is a difficult agreement to get approved since typically the borrower usually needs to have attempted a short sale with no success, there is just one loan or both loans with one lender, and there are no additional liens on the property.
Bankruptcy (either Chapter 7 or 13) – This does not stop foreclosure proceedings – it merely postpones it while the bankruptcy judge works out a debt payment plan in Chapter 13 or debts are discharged in a Chapter 7. In both cases, The bank can proceed with foreclosure at some point if payments are not made.
Follow The Step Below
Step 1: Are You Upside Down
Step 4: Action Is Key!