Understanding Short Pays & Bank REO's

Refinancing:  It is possible in many circumstances to stop a foreclosure by refinancing your home mortgage if your lender is amenable to that process.  When you refinance, you basically pay off your existing mortgage and take out a new one.  With refinancing, you can often get a lower interest rate and/or get a longer term (the amount of time to repay your loan) to save your house from foreclosure. That will lower your monthly mortgage payments. On the other hand, if you are already behind in your payments, you will have to convince the lender that you will be able to handle the new mortgage payment amount.  You will also likely have to pay closing costs if you refinance to avoid foreclosure and save your home. Closing costs include such things as a loan origination fee, loan discount points, an application/processing fee, and a document preparation fee.  However, lenders vary greatly in how much they charge for closing costs, and some banks and mortgage companies waive closing costs completely. It is also possible to incorporate those fees into the terms of your new mortgage.  Some lenders have begun to reduce and forgive a portion of the amount owed on your current loan when refinancing due to current hardships and possible foreclosure!

Loan Modification: A possible modification of your loan is another method to halt a foreclosure and save your home.  A loan modification is generally a permanent change in one or more of the terms of your mortgage. The interest rate is one of the terms that can be modified to lower your monthly payment to one that you can better afford. A loan modification is also sometimes called a workout or loan restructure.  One advantage of a loan modification to help save your home from definite foreclosure is that there are usually no closing costs. However, you may have to pay for a new appraisal of your property before your lender will approve a loan modification to stop the actual process of foreclosure.  Lenders don’t like to lower the interest rate or reduce their profit. A loan modification is generally favored over a short sale where the lender may end up losing more money than if they cooperated in the lowering of your mortgage interest rate.  

Forbearance: Requesting a forbearance is perhaps the one manner to prevent foreclosure and rescue your home if you can get your lender to agree to it. With forbearance, you may be able to negotiate a temporary deferment or reduction in the amount of your mortgage payment. Your lender, depending on the circumstances, may also possibly set aside any back payments that are in arrears.  To get your lender to agree to forbearance, you need to be able to prove that whatever caused your financial difficulty is short term. An example might be someone who has experienced unexpected medical costs or loss of job, but has now found new employment.

The Short Sale Method: A short sale will not help you save your home from foreclosure. A short sale means that your home is sold for less than what you owe and the lender is agreeable to their possible loss. However, a lender will generally only agree to a short sale when there has been a downturn in your local real estate market and property values in your area have dropped.  Another downside of a short sale to stop foreclosure is that you may have to declare the difference between the amount of the short sale and your mortgage balance as income on your taxes.  To be on the safe side, you should check with your tax advisor before agreeing to a short sale. You can then make an informed decision.  There is also another problem with using a short sale to stop the foreclosure process.  You may still owe the bank or mortgage company some money. Depending on the state where you live, the lender might be able to pursue a deficiency judgment against you for the shortage between what you owe and the sale price of the property.  So, if you choose to go the route of a short sale, you should negotiate with your lender to accept it as “payment in full” and get the agreement in writing.  Check with your attorney to see if your state allows deficiency judgments on foreclosure of your particular type of real estate loan.

Deed-in-lieu-of-Foreclosure:  You will not be able to save your home by using a Deed-in-Lieu-of-Foreclosure because you have to sign over all of your rights to your house to the bank or mortgage company.  The lender will then sell your property. If you have any equity in your property, a Deed-in-Lieu-of-Foreclosure is definitely not a good idea.  If you use a Deed-in-Lieu-of-Foreclosure, you will probably not receive any money left over from the lender’s sale of your home if the selling price was more than what was owed on your mortgage.  However, you could possibly avoid a deficiency judgment by using a Deed-in-Lieu-of-Foreclosure if the lender’s sale of your property fails to cover what you owe on your mortgage. In most states, the lender can only get a deficiency judgment if a lawsuit is filed to foreclose.  Again, it’s a good idea to check with your attorney before you proceed.  The most important thing that you can do right now to stop foreclosure and save your home is to call your lender’s loss mitigation department. It’s time to be totally honest about your situation and ask your lender to work with you. Ask your lender about forbearance, or a loan modification, or refinancing.   Try not to get too discouraged if you run into a few roadblocks in your effort to stop foreclosure and save your home. Remember, most lenders do not want to foreclose, since they are in the business of lending money and not owning real estate.  For more please call Carol at the following cell phone number anytime...