What are your Options


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HOMEOWNER OPTIONS

Real estate professionals should make sure distressed homeowners understand

all possible options.

1. Refinance

If the homeowner’s credit allows for a refinance and if the homeowner meets

the eligibility criteria, an option is HOPE for Homeowners (H4H) a program

available through the U.S. Department of Housing and Urban Development

(HUD) www.hopenow.com.

Real estate professionals should also urge homeowners to visit the Making

Home Affordable Web site for information: www.MakingHomeAffordable.com.

2. Lender Workout

Lenders often will work with distressed homeowners to help them keep their

homes by reducing or rolling back interest rates, forgiving back payments, adding

them to the loan amount, or possibly recasting the entire loan and wrapping all

fees into a fixed

‐rate mortgage.

 

 

Loan Workout Options

 

•Forbearance

Lenders may let you make a partial payment, or skip payments, if you have a resonable plan to catch up. Tell your lender if you expect a tax refund, a bonus, or a new job

•Reinstatement

Reinstatementr refers to making a payment that covers all your late payments, usually at the end of a forbearance period

•Repayment Plan

If you can't afford reinstatement, but can start making payments to catch up, the lender may let you pay an additional amount each month until you are caught up.

•Loan Modification

Your lender may agree to amend your mortgage to help you avoid foreclosure. The options include

 

o

 

Adding all the missed payments to the loan amount and increasing the

monthly payment to cover the larger loan.

o

 

Giving you more years to pay off the loan, lowering the interest rate,

and/or forgiving part of the loan, to lower your monthly payment.

o

 

Switching from an adjustable‐rate mortgage to a fixed rate mortgage, so

you aren’t exposed to increases in your monthly payment.

o

 

Requiring amounts for taxes and insurance to be included with your

monthly mortgage payment so you avoid big bills in addition to your

mortgage.

•

 

Sign Over the Property to the Lender in Exchange for Debt Forgiveness. This can hurt your credit, but is better than having a foreclosure in your credit history.

 

 

Source: Reprinted with permission from the National Association of REALTORS® and the

Center for Responsible Lending.

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3. Sell and Bring Cash to Closing

Although many homeowners today may not have the necessary cash to cure

deficiencies at closing, they may have to liquidate assets, e.g., U.S. Treasury

bonds, individual retirement accounts (IRAs), to do so. By curing deficiencies at

closing, homeowners can avoid the credit damage that a short sale or

foreclosure can cause. However, homeowners are strongly encouraged to

consult with their finance and tax professionals before bringing liquid assets to

closing.

4. Deed in Lieu of Foreclosure

A deed in lieu of foreclosure occurs when the borrower agrees to trade the

property to the lender in exchange for the cancellation of the note. This

foreclosure alternative is more likely to work in states where there is a long

foreclosure timeline. The lender will be able to get the property much sooner

Short Sales and Foreclosures Supplemental Webinar Handout

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than going through the foreclosure process, which lessens the probability of the

property being in disrepair as well as eliminates the lenders costs to foreclose.

Market conditions as well as state

‐specific laws will influence whether and how a

lender accepts a deed in lieu of foreclosure. Typically, lenders are less willing to

consider a deed in lieu of foreclosure in declining markets. However, in

appreciating markets, lenders may accept properties in lieu of foreclosure.

5. Foreclosure

If the homeowner is only weeks away from the foreclosure sale taking place, the

homeowner may not be able to pursue any of the previous options, including a

short sale. If contacted by the homeowner at a late date, recommend that the

homeowner contact the lender immediately, and see if there is any way to

explore foreclosure alternatives. Also, in some situations, foreclosure may even

be in the best interest of distressed homeowners, although doing so will wreak

the most damage to their credit.

If the lender will not explore foreclosure alternatives, real estate professionals

should instruct their clients and customers to contact their attorneys for advice.

6. Do Nothing or Walk Away

If homeowners are simply unhappy that the value of the property is less than

what they paid or owe, they need to contact an attorney for advice. Walking

away from the loan or asking the lender to proceed with a short sale simply

because the value went down may not be a viable option and if it is, there will

often be additional financial consequences.

IS THE LOAN RECOURSE OR NON

 

‐RECOURSE?

In a recourse loan, the borrower retains personal liability for any deficiency after

a short sale or foreclosure. The lender reserves their right to pursue the personal

assets of the borrower by obtaining a court ordered deficiency judgment.

In a non

‐recourse loan, the lender is limited to whatever funds are available from

its security interest in the property itself and cannot force the borrower to repay

any deficiency.

 

Available at: www.Realtor.org

How to Avoid Foreclosure and Keep Your Home.