What Are Your Options When You Can No Longer Afford Your Home?
If you are in a position that you can no longer afford to make you payments or have already fallen behind on your mortgage, it can be a very stressful time. There are many emotions that come along with this situation… pride, fear, anger, disappointment…. And the list keeps going. We work with people everyday that are going through the same thing, and understand what you are going through. The most important thing for you to do in this situation is to first, understand that you are not the only one. Millions of people are going through this same situation right now. In most cases, there is nothing that could have been done to prevent it. The most important step at this point is to make sure that you understand your options and take advantage of the solutions that are available to you.
Once you have fallen behind on your mortgage you will receive information, and lots of not so subtle suggestions from many people who want to take advantage of your temporary misfortune. Most will tell you that time is your enemy and that you must act immediately to save your credit. Some will try to steer you towards one option that benifits them, and others may follow with a proposal to solve your problem by selling or deeding your property to them.
Don't do it! Don’t do anything until you understand your options. And please make sure to read our section "Beware of Scams" to make sure you understand what to watch out for.
Facing the prospect of foreclosure can be overwhelming, but less so if you know your other options. Homeowners with distressed loans often ignore their alternatives to foreclosure until it's too late. Don't make that mistake. Consider your other options right away. The more time you have before you ultimately lose your home through foreclosure, the more viable your other options may be. Things may seem bleak, but now is not the time to falter. Knowledge and determination will give you the resolve you need to overcome the financial challenges you face.
1. Home Affordable Modification Program (HAMP) or Standard Loan Modification: If you wish to keep your home, the very first thing you should do is check if you qualify for either HAMP or a standard loan modification. Through HAMP, the federal government offers borrowers with loans insured by Fannie Mae or Freddie Mac the opportunity to refinance into lower interest rate loans.
According to the Treasury Department, at the end of November 2009, only about 4 percent of the homeowners who signed up for loan modifications had received them. Not only are they difficult to obtain, they take months to complete. You must be persistent if you wish to pursue this option. Banks are inundated with requests for loan modification, so you’ll have to be a good advocate for yourself. You should also be prepared for a long wait. This isn’t something that will get approved in a week. It will likely take months from the point of first contact. The more organized you can be, the faster you'll help your case move through the system.
If you have fallen behind on your payments, it's important to start this process as early as possible.
2. Loan Workout: If you experience difficulty paying your mortgage, you should immediately contact your lender or a housing counselor to try to work something out. If you just need a little time to get back on your feet, your lender may agree to a loan workout plan to temporarily reduce or suspend your payments, allow you to repay what's past due in monthly installments, or provide some other type of relief.
3. Home Affordable Foreclosure Alternatives Short Sale (HAFA) or A Traditional Short sale: A short sale is when you sell a home for less than what is owed on the mortgage. The HAFA short sale and traditional short sale are very similar. You can read additional information on a HAFA Short Sale here.
These options are available for homeowners who 1. can no longer afford their home; 2. do not qualify for a trial mortgage modification under the Making Home Affordable Program; 3. do not successfully complete the trial period for their modification; 3. miss at least two consecutive payments during their modification period; or 4. request a short sale or deed-in-lieu of foreclosure.
To sell the home as a short sale, you should list it with a real estate professional that's well versed in these types of sales. The short sale process is very complex. You will be contacted by numerous agents claiming to be "experts" or "specialists". The truth is, most have completed very few if any. And a short sale designation does not mean anything. If you want a truly experienced agent, verify they have closed at least 20 short sales.
4. Deed in lieu of foreclosure: Generally, if a borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a deed-in-lieu of foreclosure. With a deed-in-lieu, the borrower voluntarily transfers ownership of the property to the servicer— provided the title is free and clear of mortgages, liens, and encumbrances.
It is our experience that very few if any lenders are completing Deed in Lieu's.
5. Bankruptcy: In some cases, a bankruptcy is a better alternative for homeowners. In some cases it's due to a "recourse loan" that needs to be foregiven. In others, it can whipe out a second mortgage, which reduces the home owners payments and gives them an opportunity to stay in the home.
Bankruptcy is a federal court proceeding for settling your debts with your creditors under a judge's supervision. If you face foreclosure, the filing of a bankruptcy case may provide an "automatic stay" to temporarily stop the foreclosure proceedings. If. however, you file for liquidation under Chapter 7 of the Bankruptcy Code, the court may, in time, lift the automatic stay to allow the mortgage lender to resume its foreclosure proceedings. Alternatively, if you file under Chapter 13. you may be able to keep your property, but you must generally repay the overdue amount in a
three-to-five year plan along with your regular mortgage payments. You can view additional information on Banruptcy HERE.
6. Foreclosure: This option should only be considered as a last resort. If you can’t refinance or modify your loan, if your bank won’t agree to a short sale or deed in lieu of foreclosure, and if bankruptcy isn’t an option for you, foreclosure may be your only choice.
Foreclosure will have the most impact on your credit and will be the most difficult for you to rebuild you credit from.
7. Other Alternatives: There are many other alternative to foreclosure. You may be able to borrow money from family or friends. You may be able to supplement your income by renting out a bedroom or getting a second job. You may have a struggling small business that qualifies for an interest-free, deferred-payment America's Recovery Capital (ARC) loan up to $35,000 from the U.S. Small Business Administration. You may also be able to come up with some other alternatives to foreclosure not mentioned here. For any of these alternatives to foreclosure, carefully consider their pros and cons, including possible credit, tax, legal, and other consequences.
The bottom line is to be proactive and start the process as early as possible when you have realized you are no longer able to afford your home. If you feel that you may want to keep your home, your first step is to contact your lender.
If you have already attempted to modify your loan or know that you no longer wish to keep your home, do not hesitate to contact our team. There is never any obligation or fee for our time. We have the experience necessary to successfully complete a short sale on your property.
Call or send us an email. We can make things easier than they might seem, and will assist you through the solution that makes the most sense for YOU.