First of all, let’s set the record straight:
Your lender does not want to foreclose on your home.
At ForeclosureFish, I receive phone calls every day from homeowners who are certain their bank is trying to foreclose on them because they want to sell their home, steal their equity, and earn a large profit.
The fact is, banks and lenders lose as much as 50% when a home goes to foreclosure. Trust me, your lender does not want your home to go into foreclosure. In most cases, homeowners force their lender to foreclose by not offering a better solution. It’s up to you to contact your lender and explore all possible options to avoid foreclosure. Lack of communication, or avoiding phone calls is the absolute worse thing you can do in this situation.
Your lender also has a legal obligation to try and work out a solution through loss mitigation, you just need to contact them early enough and work with them until you can reach a mutual plan to bring the loan to a current status.
Here are the foreclosure help programs available through loss mitigation:
Special Forbearance Agreement
If you have recently experienced a financial hardship due to circumstances beyond your control, this option may be available. This is an agreement that allows a period of reduced or suspended payments up to 18 months from the date of the first missed payment. After this grace period, up to 12 missed payments can be spread out over the remaining life of the loan.
The lender may re-amortize your loan for up to 30 years and in rare cases, they may even lower your interest rate. A Mortgage Modification may be allowed if your income has been reduced, but you have fully recovered from any financial hardship.
Partial Claim (For FHA Mortgages)
Explore this option if mortgage modification and special forbearance are not possible. You must be more than 4 but not more than 12 monthly payments behind. You must show you now have sufficient income to resume making full payments. The arrears are paid to the bank by HUD and you are given an interest free mortgage for the amount of the arrears, which calls for repayment at some future date or when ownership is transferred.
This is when the lender allows a month or two grace period to bring payments current.
Deferral of Principal
You are only required to pay interest on your loan until you can afford the normal payments again.
You pay one half of the arrears and agree to a repayment plan no longer than 18 months to pay off the rest.
The lender issues a new loan at current market rates. This is usually only an option only if you are two months or less behind.
You pay the arrears with an additional payment each month. The term is usually limited to 12 months and will not exceed 18 months.
Deed in Lieu of Foreclosure
This allows you to sign over the title on your property to the bank and they agree to accept the deed as complete satisfaction of the loan. This option does not work if you have additional liens on the property.
Sell the Home
If you can sell the house, you can save some of your equity, if the sale will give you enough to pay the note(s) and/or lien(s) in full. You can sell the house at any time up to the final redemption date. Some lenders have even been known to extend the redemption period to allow enough time for a sale. The proceeds will be used to pay off the bank (including costs and fees) as well as any liens. You may keep any additional proceeds from the sale. Your lender may also allow your loan to be assumed by another party. A short sale (a sale for less than the amount owed) may also be allowed if your home is worth less than the amount owed. Before entering into a short sale, make sure you understand the consequences, because the banks loss can be taxable as your income.
Take the time to contact your lender and discuss the options above as soon as possible. And remember, always get everything in writing and keep very detailed notes of every conversation and first and last names of everyone you speak with. (use employee #’s if they wont give you a full name) Even if you have already been turned down, I would continue speaking with your lender until a successful solution as been reached. Persistence will pay off and you can save your home from foreclosure.
If you would like a personal evaluation and a step by step guide to help you through foreclosure, please complete our free foreclosure evaluation.