Foreclosure Options

Foreclosure is one of them most devastating financial challenges that a family can face. And many times can be avoided. There are many options for Charlotte-area residents who face foreclosure. Each has its own benefits and drawbacks.

Reinstatement

 
A reinstatement is the simplest foreclosure solution; however it is the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.

• Benefit:  Does not require the mortgage company or lender’s approval
• Drawback:  Requires the homeowner to be able to pay all back payments, fines and fees

Forbearance or Repayment Plan

A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

• Benefit:  Allows the homeowner to make back payments over time
• Drawback:  Requires a homeowner to be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies require a homeowner to qualify for forbearance

Mortgage Modification

A mortgage modification involved the reduction of one of the following:  the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. This typically results in a lower payment to the homeowner and a more affordable mortgage payment.

• Benefit:  Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance on the loan
• Drawback:  Requires that a homeowner qualify for the new payment and will often require full documentation. Lender has to be actively pursuing modification

Lease the Property

A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental and use the rental income to pay the mortgage.

• Benefit:  Allows the homeowner to keep the property indefinitely
• Drawback:  The issues that can arise with rental property are many, and rent oftentimes does not cover the full cost of property ownership and maintenance

Deed in Lieu of Foreclosure

Also known as a ‘friendly foreclosure’, a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option and the homeowner must vacate the property.

• Benefit:  Many times in a successful deed in lieu, the lender will forego their right to the deficiency judgment
• Drawback:  Requires that a homeowner vacate the property and a deed in lieu may be reported to credit bureaus as a foreclosure

Bankruptcy

Many have considered and marketed bankruptcy as a foreclosure ‘solution,’ but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of making their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

• Benefit:  Does not require lender approval
• Drawback:  If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall – not stop – the foreclosure process. Bankruptcy can be costly, is damaging to your credit score, and can only be declared once every seven years.

Refinance

If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.

• Benefit:  In some cases, this may lower payments
• Drawback:  In today’s market, a refinance will almost always raise mortgage payments and is an expensive process

Servicemembers Civil Relief Act (military personnel only)

If a member of the military is experiencing financial distress due to deployment and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys who will work with servicemembers in relation to qualifying for this relief.

• Benefit:  If qualified, this will lower payments on all consumer debt, including mortgage payments
• Drawback:  Must be active military to qualify

Sell the Property

Homeowners with sufficient equity can list their property with a qualified real estate agent who understands the foreclosure process in their area.

• Benefit:  Allows homeowners to avoid foreclosure and harvest home of their equity
• Drawback:  In many cases, homeowners do not have sufficient equity to sell their property without negotiating a short sale

Short Sale

If a homeowner owes more on their property than it is currently worth, they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with the lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify.

• Benefit:  A short sale allows homeowners to avoid foreclosure and salvage some of their credit rating. It also keeps foreclosure off the individual’s public record, and in most cases, allows the homeowner to avoid a deficiency judgment.
• Drawback:  Short sales can be a trying and lengthy process, which is why a homeowner is best served by contacting a qualified real estate agent to guide the way.

Understanding your options now could mean all the difference in the world. Call me (704) 502-7744.

Holly Pasut
Broker NC, Lic. SC, Certified Distress Property Expert (CDPE), Certified Luxury Home Marketing Specialist (CLHMS), Certified Negotiation Expert (CNE), Graduate Realtor Institute (GRI)
Holly@TeamHolly-would.com
Hines & Associates Realty
                                                                            Content courtesy CDPE.com