Alternatives To Bankruptcy
You May Be Able To Save Your Home from Foreclosure with Loss Mitigation
Loss mitigation programs were established by the federal government and the mortgage industry in order to stop home foreclosure. They help foreclosure victims in default on their mortgages to find alternatives to home foreclosure. Every homeowner’s situation is unique and each lender has their own policies regarding the use of these programs to stop foreclosure.
A modification agreement is typically used when the homeowner has the ability to pay some of the past due payments and to continue making future payments, but does not have the funds to completely reinstate the loan. Typically, the homeowner's loan terms are modified in order to resolve the mortgage delinquency and to help homeowners who have a significant reduction of income that severely impacts their ability to pay, and will last past the foreseeable future. This agreement makes the mortgage more affordable for the customer.
A forbearance agreement is a written agreement between the borrower and the lender to enact a payment moratorium due to unforeseen circumstances wherein the property or employment status is affected. At the expiration of the term, the borrower pays the total arrearage in a lump sum payment or elects a repayment plan. This agreement is typically used when borrowers have a short-term reduction of income that severely impacts their ability to pay for a short period of time.
An informal repayment plan is typically offered to homeowners with the ability to make the payments towards the delinquency, but not the ability to pay everything that is due at once. A down payment on the arrearage is accepted from the homeowner, the account is segregated from the collection population and monitored separately while the homeowner makes the regular monthly payment plus a predetermined payment towards the arrearage. Foreclosure action is held during this process contingent on the successful completion of the plan. Upon completion of the plan, the loan becomes current.
The homeowner does not have either the desire or ability to keep the property and is willing to sell the property to satisfy the debt. This option is utilized when the amount owed, less acceptable closing costs to sell the property, is more than the value of the property. The deficiency resulting from the sale is written off.
Deed-in-Lieu of Foreclosure
The homeowner has neither the desire nor the ability to keep the property. The homeowner is unable or unwilling to sell the property. The homeowner is willing to sign the property over to the lender in exchange for stopping the foreclosure action. Deeds in lieu of foreclosure are generally accepted only after all other options have been exhausted.
The homeowner has the ability to pay some of the past due payments and to continue making future payments, but does not have the funds to completely reinstate the loan. Partial payment is accepted and the balance of the deficiency is deferred until the end of the loan term. This option is utilized when the homeowner's hardship that caused the delinquency was temporary and has been resolved prior to execution of the extension.
A formal loan extension, renewal or material change in loan agreement (i e. interest rate, amount of installment, and maturity date)
- Capitalize delinquent interest, escrow shortage, legal fees
- Spread over remaining term and extend term, only if necessary to qualify
- Contribution of at least one payment and more, depending on ability
- Subordination agreements may be necessary depending on arrears if there are junior liens
- Convert to required escrow account if taxes/insurance advanced
- If arrears, are less than 3-4 payments
- If debtor had previous loan mod
- If debtor defaulted within first 12 months
- Disposable Income is substantial
- Arrearages spread over 12-18 month
Borrower sells property to third party and lender accepts less than the full amount owing on the secured debt as complete satisfaction
- Verification as to other liens that may exist (bankruptcy schedule D)
- Request listing agreement
- Contact information for appraisal
- Request purchase/sales agreement
- Proposed net sheet reflecting amount going to service
- Obtain investor/insurer approval
Deed in Lieu of Foreclosure
Borrower deeds the property to the lender in satisfaction of the secured debt
- Must be faster than a foreclosure action (Texas/Georgia usually not considered)
- Inspection of property performed
- Title search conducted to assure there is no junior lien, judgments