Considering Foreclosure? Options for Distressed Homeowners
As a homeowner at risk of default or has defaulted on your mortgage you may believe that foreclosure is your only solution to mounting mortgage problems, but there are options available to you.
As a Realtor I would like to serve as a resource for you in this situation as I have taken special training on assisting homeowners in distress to understand options to consider so you are able to make the best decision for your future. I am not able to legally advise on finance, tax or legal consequences and would highly recommend that you seek advice from qualified finance, tax and legal professionals. Foreclosure avoidance counseling is also available through U.S. Department of Housing and Urban Development (HUD) www.hud/gov/foreclosure.
Options for Distressed Homeowners
- Refinance. Homeowners who are current with their mortgage payments may be able to take advantage of today’s mortgage rates and keep their homes by refinancing to a 30- or 15-year fixed-rate loan via Home Affordable Refinance, a component of the Making Home Affordable initiative launched in early 2009. For more information, visit the Making Home Affordable website: http://www.makinghomeaffordable.gov/.
- Sell and Bring Cash to Closing. Many homeowners may not have the necessary cash to cure deficiencies at closing, they may have to liquidate assets (e.g., U.S. Treasury bonds, individual retirement accounts (IRAs), to do so. By curing deficiencies at closing, homeowners can avoid the credit damage that a short sale or foreclosure can cause. However, homeowners are strongly encouraged to consult with their finance and tax professionals before bringing liquid assets to closing.
- Lender Workout. Lenders will often work with distressed homeowners to help them keep their homes by reducing or rolling back interest rates, forgiving back payments, adding them to the loan amount or possibly recasting the entire loan and wrapping all fees into a fix-rate mortgage. For many lenders, loan modification is a suitable workout option since lender losses on foreclosures can run high. For more information, visit http://www.makinghomeaffordable.gov/.
- Short Sale. A short sale is a situation in which the seller (1) owes more money on the loan than the sale of the property will likely produce on the market and (2) is unable or unwilling to bring money to closing. In a short sale, the lender has not yet foreclosed on the property, which provides a window of opportunity for the owner to sell the property in order to at least partially satisfy the amount owed to the lender. Short sales are considered preferable to foreclosures because short sales (1) lessen the impact a foreclosure can have on the surrounding community and (2) won’t damage the distressed owner’s credit as much as a forecloure. If the borrower is still current with other paymens, a short sale may lower the borrower’s credit score by as little as 50 points. Also, a lender may or may not foregive the remaining indebtedness. If a short sale is judged to be your best option, please contact me to discuss in more detail as there is process to qualify.
- Deed in Lieu of Foreclosure. A deed in lieu of foreclosure occurs when the borrower agrees to trade the property to the lender in exchange for the cancellation of the note. Typically, lenders are less willing to consider a deed in lieu of foreclosure in declining markets. However, in appreciating markets, lenders may accept properties in lieu of foreclosure.
When refinancing, a loan modification or a short sale doesn’t work, unfortunately foreclosure is the only option. Foreclosure can lower credit scores by 200 points or more and remains a public record and on credit history for 7 years.
Walking away or doing nothing may be considered; however, simply because the value went down may not be a viable option to justify walking away, and if it is, there will often be additional financial consequences. I highly recommend contacting an attorney for advice if this is something you are considering.
I hope this information was helpful. Please feel free to contact me with comments or questions.