although this site is geared towards investors, I will try to give sellers some help as well. Also, understanding what the seller’s options are can benefit both the seller and the buyer, especially the investment buyer. Home owners who finds themselves upside down (they owe more on their house than the house can be sold for) may be facing foreclosure… so what are their options?!? They need to look at the situation more from a financial perspective rather than an emotional perspective. This way they can more successfully analyze which option might best suit their needs and desires to move them towards resolving their financial difficulty. One very important thing to remember: Time is of the essence. they need to take the time to think through their situation and make a decision. Then, take action right away so that they have enough time to complete the solution they choose.
There are nine Options When Facing Foreclosure. These options are listed in 2 groups. Group 1 is for those who want to keep their house and continue to live in it. Group 2 are for those who want to get out of their house.
GROUP 1 (Stay in the house)
1. Reinstatement – Paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
2. Forbearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
3. Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt. New debt is at a normally higher interest rate and there may be a prepayment penalty because of the recent default. With this option, there should be equity in the home.
4. Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.
5. Loan Modification – Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment.
6. Bankruptcy – This option can liquidate debt and/or allow more time. I can refer you to a qualified bankruptcy attorney.
–Chapter 7 (Liquidation) To completely settle personal debt.
–Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years. Chapter 13 can also stop any foreclosure activity, temporarily. If the homeowner still cannot pay their bills, the home will eventually be lost to foreclosure. Since the laws can be different from one state to another, I strongly suggest that if you are facing foreclosure and none of the other options are viable, you talk to a REPUTABLE bankruptcy attorney.
–Chapter 11 (Business Reorganization) A business debt solution.
GROUP 2 (Want to move)
7. Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applications ask if this has ever happened.
8. Short Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property’s value. In most cases this is a VIABLE option and it will not hurt your credit as much as a foreclosure will. Fore more information on Short Sales, please contact me, wherever in the US you may be.
9. Do Nothing – If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Not the best option.
I hope this helps both sellers and buyers understand the alternatives to foreclosure.
Please contact me for additional information.
Please complete the FORM if you would like to talk to real estate professional near you who is an expert in foreclosure alternatives.