Homeowner Options
Loan Modification
A Loan Modification is a change in one or more of
the terms of your loan allowing the loan to be
restructured, resulting in a lower payment that
you can afford. Loan modification (sometimes
called Loss Mitigation) is the process that
allows an individual to negotiate with the
lender to lower their monthly payments by
reducing their interest rate, extending the term
of the loan, reducing their principal balance,
or any combination of these.
A loan modification restructures the terms of a
loan without actually refinancing the property
it secures. It is an agreement between the
lender and the borrower which stipulates a short
or long term relief from unfavorable loan terms.
Due to all of the federal and lender based
programs currently available, the most crucial
step in achieving a successful loan modification
is submitting a well-prepared package to the
lender.
Foreclosure
Foreclosure is the legal process in
which a bank or other secured creditor sells or
repossesses a parcel of real property (your
home) after the owner has failed to comply with
the agreement outlined in the Note.
Foreclosure is an action by the bank to take
back your property, and as a homeowner you have
the right to defend yourself in that action. In
most states, the bank must take specific steps,
in the correct order, with the correct timing,
in order to have the right to foreclose. If your
lender has already started the legal foreclosure
process, you should seek the advice of an
attorney to review your options. In many cases,
specifically if the bank has resorted to
foreclosure because they have not been able to
communicate with the homeowner, a loan
modification is still a viable option and the
request must be submitted as quickly as
possible.
Short Sale
A short sale is when a bank or mortgage lender
agrees to allow the homeowner to sell their
property even when the net proceeds of the sale
result in a payoff to the bank that is less than
the amount owed. The homeowner sells the
mortgaged property for the amount approved by
the lender, and turns over the proceeds of the
sale to the lender in full satisfaction of the
debt. In the case of a short sale, the homeowner
is not allowed to receive any of the proceeds of
the sale.
If a homeowner doesn’t qualify for a loan
modification or does not want to remain in the
home, a short sale is one option for the
homeowner to avoid having the bank foreclosure
on their home. A short sale can result in a
negative impact to your credit rating, but is
typically considered a better outcome than a
foreclosure. Short sales can also result in tax
liabilities resulting from the amount of the
debt that the lender has to write off due to the
discounted proceeds. You need to consult a tax
adviser to discuss any liabilities that might be
incurred in your specific situation.
Deed in lieu of Foreclosure
If you have run out of options and the foreclosure
process has not been stopped by the lender, a
deed in lieu of foreclosure may be a way to
resolve the situation.
A deed in lieu of foreclosure is a consensual
transaction between you and your lender.
Typically, the lender draws up the Deed in Lieu
of Foreclosure Agreement. Under a Deed in Lieu
of Foreclosure, the homeowner avoids foreclosure
by signing or deeding the home back to the
lender in exchange for the release of all
obligations under the mortgage. In some cases,
if the home is delivered to the lender in good
condition and the lender can sell the home
quickly, the borrower may not owe the bank the
difference. But if the value of the home is
considered to be less than the amount owed, the
homeowner is typically still on the hook for the
difference. Most lenders will not even consider
a deed in lieu unless the property has been
actively marketed for sale for at least 90-120
days or whether there is enough equity in the
property to satisfy the amount owed to the bank.
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