Foreclosure is Not Inevitable, You DO Have Options

Many people who are having trouble paying their mortgage don't realize they do have options.  Foreclosure is just one of them, and in most cases should be avoided at all costs. Here are some possible solutions:

  1. Reinstatement - If the reason you missed your payments was temporary and has been resolved, you have the option to reinstate your loan.  To do this contact your mortgage company and ask for a reinstatement.  You will likely have to pay all missed payments, late fees and legal fees incurred by the bank up until the date the loan is reinstated.  In most cases you can reinstate your loan right up until the date of the bank sale.
  2. Forbearance Repayment Plan - If the issue that caused you to miss your mortgage payments was temporary and has been resolved, but you don't have enough money to make a reinstatement payment you could request a forbearance.  Under this plan, the lender will allow you to make good what is owed over time.  Another option is for the lender to add what is owed to the "back end" of the loan.  There is a catch: typically under a forbearance the mortgage is not fully reinstated until all payments are made in full.  If you were to miss just one payment during the forbearance period, the bank could proceed with foreclosure.
  3. Rent the Property - In some cases you will be able to rent the property and cover your mortgage payments.  If you are considering this option, be sure that the rent payments covers all expenses incurred.  Many people forget to factor in taxes, maintenance, vacancy, etc.
  4. Refinance the Property - If you have sufficient equity in the property and good credit you could refinance the property.  To see if this may be an option for you, check out the Making Homes Affordable website sponsored by HUD and the Department of Treasury.
  5. Sell the Home - This is an excellent option if you can no longer afford your payments, but do have equity in the property.  Many people mistakenly avoid this solution thinking they don't have time or will have to take less than the property is worth.  That is rarely the case.  If you don't have equity, this may still be an option -- see Short Sale below.
  6. Mortgage Modification - This if very similar to a lower interest refinance.  The current lender lowers the interest rate on the existing loan to result in lower payments.  This is often an excellent option to allow homeowners to keep their homes.  WARNING: Be aware of the many Loan Modification scams.  Under no circumstance should you be asked to pay a fee.  For more information loan modification scams and how to avoid them read this advisory from the California Department of Real Estate.
  7. Short Refi -  This is a relatively new option, and an indication of just how much banks are willing to work with homeowners who are in trouble.  On a Short Refi the lender actually reduces the principle balance owed, and often the interest rate, too.
  8. Deed In Lieu of Foreclosure - This is sometimes referred to as a friendly foreclosure.  The homeowner essentially deeds the property back to the bank.  This prevents the bank from having to go through costly foreclosure proceedings and in return the bank MAY forego their rights to a deficiency judgement.  This is rarely a good choice if you have equity in the property or the opportunity to sell the house.
  9. Bankruptcy - In most cases a bankruptcy does not stop a foreclosure, it simply stalls a foreclosure to allow the homeowner to reorganize their debt.  This may be a good option if you have other debt, that if forgiven, will allow you to make your mortgage payment.  Before choosing this option be sure to speak with your accountant and attorney.
  10. Service Members Civil Relief Act (SCRA) - The SCRA was signed into law in 2003 to provide protection to military personnel and other service members.  It provides temporary relief from paying your mortgage if you are called to active duty. Many restrictions apply.
  11. Short Sale - Many homeowners do not realize that they can sell their property for less than is owed on the loan. In a short sale an experienced agent can negotiate with the bank to accept less than is owed on the property.  This is an excellent way to avoid foreclosure and is often the best choice for a homeowner behind in their payments.  However, it can be a difficult process, and there may be some consequences, so it is important to only work with agents who know how to handle the process.  We recommend working only with a CDPE certified agent.

The above information should give you a good feel for some possible solutions.  In no way should it be construed as legal, financial or tax advice.  If you find yourself in a situation where you are having trouble making your mortgage payment, we recommend that you seek out specific legal advice from an attorney and tax advice from an accountant, and real estate advice from a Certified Distressed Property Expert. 

Contact The McGhee Group at 619-318-1317 or www.themcgheegroup.com.