Knowing Your Options

Hopefully you have viewed the The Foreclosure Process page already. If not, you may want to view it before reading about your options. It is essential that you understand the foreclosure process well enough to understand the options available for someone approaching foreclosure.  Below is a brief explanation of the options currently available. 

  You have several basic options: 

1. Bring the Mortgage Current – This is the most obvious option to stop Foreclosure. The challenge is most of the time the backed owed amount (known as arrearages) is at least several thousand dollars if not much more. This is a lot of money to someone who is already experiencing financial challenges and having a difficult time making their monthly payments. 
2. Special Payment Arrangement – You could ask for a special payment arrangement. However, not every lender will volunteer this arrangement without the borrower asking for it. This arrangement works typically like this: The lender would require you bring in, maybe two or more payments right now to initiate the arrangement. They will allow other payments owed, to be caught up over a short period of time. For example you could pay one and ¼ payments until the back owed amount is paid in full, or perhaps one and ½ payment until all back owed amount is paid. This option only works if someone has the initial up front money required, and can afford higher payments for several months. This often only serves  as a "band-aid" and many times homeowner's end up in the  same situation again.
3. Forbearance Plan or Other Modification – Your lender may reduce your monthly payment for short period of time, perhaps six months, and put the monthly payment shortage amount on the back of the loan. This typically can be used only in the case of death, terminal illness, serious health problems or disability, natural disasters not covered by insurance, or a substantial reduction in income that could not be prevented. The major negative with this option, is that your loan typically has to be current in order for the forbearance plan to be allowed. Obviously, this option works if you fit into the criteria. Unfortunately, not many homeowners mortgage default can make this work.
4. Deed in Lieu of Foreclosure – This is where you just deed (transfer title) the property back to the lender and then they don’t have to spend as much money on attorney’s fees to finish the foreclosure process. You just walk away from the property. This option is not a good one. A “Deed in Lieu of Foreclosure” reporting on your credit report is just as bad as a “Foreclosure” reporting. The only positive thing about this option is the lender saves time and money. It doesn’t help you out at all!
5. Refinance – Most traditional mortgage lenders will not lend money to someone who is currently over 30 days late on their mortgage. There are even fewer lenders whom offer mortgage lending to a borrower who has recently had the foreclosure process initiated. However, you may be able to secure what is called a “Hard Money Loan”. This loan would allow you to pay off the mortgage(s) in default. Hard Money lenders do not care much about how late you currently are, but there interest rates are really high. Their loans are also designed to be very short term (3 to 6 months). At the end that time frame, they require their loan to be paid in full, or they will foreclose. They are not nearly as patient as conventional / traditional lenders. They foreclose quickly! These types of loans are typically “band-aids” and do very little to solve the underlining problem.
6. Offer to Sell (FSBO or with a Realtor) – You could try to sell your house either “For Sale By Owner” or with a Realtor before the lender forecloses. Obviously, you need sufficient time to sell your house - often a number of months from start to finish. Depending upon the stage of the foreclosure process, there might only be weeks until the house is sold at public auction. When you are in a time crunch it helps to have an experienced agent who understands these situations and can act quickly on your behalf. 
7. Sell Now to an Investor – Most investors can close quickly because they buy with cash and don’t need to qualify for loan approvals. The process is quick and there aren't all those people coming through your home to determine if they want to buy it or not. Of course there are downsides to this option as well. Typically investors want to buy a house wherein they will have significant equity or there are some other financial benefits. They want a ‘good deal’, which means the current owner often must sell the house significantly less than the market value. Your equity typically now belongs to the investor. Most investors will only buy your house if you have significant equity. So if you owe close to the market value of the property, they will not be interested in buying your home. However, some savvy investors have creative, but totally legal, ways to purchase a property without significant equity.
8. Foreclosure – The last and worst option is Foreclosure. With this option, the lender forecloses, the house is sold at auction, and you walk away with nothing except a ruined credit rating. Far too many people either choose this option, or are forced into it. This happens because they don’t know about the other options, or they wait too long to act on the available options.

Each option has its appropriate place and time. Only correct knowledge and good Foreclosure Sense will help you determine which option best suits your individual situation. We cannot adequately express the importance of understanding each option well. Furthermore, with most of the options you really need an expert to assist and walk you through the process. Of course the only option that happens by itself without any effort is Foreclosure. 

Please don’t let Foreclosure be the option you choose because you do nothing or wait too long to do something to prevent if from happening.   Please view the next page entitled How We Can Help for a brief explanation of how we can assist you.