The current U.S. housing market and national financial crisis has caused untold stress and heartache for many American families. Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. Following is a brief explanation of the solutions available to stop foreclosure, including their benefits and drawbacks:
A reinstatement is the simplest solution for a foreclosure, however; it is often the most difficult. Reinstating a loan stops a foreclosure because the borrower is allowed to catch up on payments in default, as well as past-due fees, costs, and penalties incurred as a result of the default. Once reinstated, the borrower resumes making regular payments on the loan. To reinstate a loan, you must first find out from the lender the amount needed to reinstate.The timeframe for reinstating a loan. In most cases, the deadline to reinstate a loan is 5:00 p.m. on the last business day before the sale date. However, it is risky to wait until the last minute to reinstate.
- Benefit: Does not require the mortgage company or lender’s approval.
- Drawback: Requires that a homeowner 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 that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies will require a homeowner to ‘qualify’ for forbearance. Additionally the foreclosure is not canceled until all money due is paid.
A mortgage modification involves 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. These typically result in a lower payment to the homeowner and a more affordable mortgage.
- Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
- Drawback: Requires that a homeowner ‘qualify’ for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.
Rent the Property
A homeowner, who has a mortgage payment low enough that market rent will allow it to be paid, is able to convert their property to a rental and use the rental income to pay the mortgage.
- Benefit: Allows homeowner to keep property indefinitely.
- Drawback: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance. Additional risk is found in the renter not paying rent.
- December 2015 (1)
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