Did you know that foreclosure is not the only option to help homeowners struggling to make payments. The Federal Trade Commission outlines the following options:
- Reinstatement – the borrower pays the entire past due balance plus late fees and penalties by an agreed upon date.
- Repayment Plan – the lender gives the borrower a fixed amount of time to repay past due payments by adding a portion to the regular payments.
- Forbearance – mortgage payments are reduced or suspended for an agreed upon period of time. At the end of that time, the borrower resumes regular payments plus a lump sum or partial payments for a number of months to bring the loan current.
- Loan Modification – the borrower and lender agree to permanently change one or more terms of the mortgage contract to make payments more manageable. Modifications could include lowering the interest rate, extending the term of the loan, or adding missed payments to the principal. Some lenders may forgive a portion of the debt under the Mortgage Forgiveness Debt Relief Act of 2007. Check with a tax expert regarding reporting or excluding the income.
- Sale - the homeowner sells the property and pays off the debt. Some lenders may postpone foreclosure if there’s a pending sales contract or if they know the home is being listed for sale.
- Short Sale – the lender allows a property to be sold for less than the existing loan balance. A short sale is really a form of pre-foreclosure and occurs when the lien holder agrees to accept less than the loan amount to avoid the foreclosure process.
- Deed-in-Lieu – with the lenders agreement the homeowner voluntarily transfers property title to the lender in exchange for cancellation of the remainder of the debt. Although the homeowner loses the home and equity, this process is less damaging to the borrower’s credit than a foreclosure.