Six Alternatives to Foreclosure
Loss Mitigation is the term used by mortgage companies to describe their programs that can help you prevent foreclosure. Here are some important things to understand when dealing with a lender’s Loss Mitigation department:
- When speaking to your mortgage company, ask to speak with the “Loss Mitigation” office, which is sometimes called the “Loan Counseling” department. These are the people who can help you address your late-payment issues.
- To be able to assist you, the mortgage company must see a budget that clearly demonstrates the income coming into the home and all of the household bills.
- Take time to understand the type of loan you have. Is it a fixed-rate loan or an adjustable-rate loan? Did you take out a loan through a governmental or public agency, such as FHA, Rural Development or the Veterans’ Administration? Do you have private mortgage insurance? Make sure the answers to these questions are part of your discussion with the Loss Mitigation department.
If the home is affordable, possible options for repayment may include:
- A Repayment Plan: The mortgage company may be willing to take the amount that you are delinquent (overdue) and add it on to your regular payment spread out usually over 3-12 months. Some mortgage companies will allow longer.
- Loan Modification: In this case, the mortgage company adds the amount that you are delinquent to the principal balance of your loan. If they think it is necessary, they may consider extending your terms back out to 30 years and/or adjusting your interest rate. Some banks may consider changing your loan from an adjustable rate loan to a fixed-rate loan.
- Partial Claim: This option is applicable only to FHA loans or those with PMI (private mortgage insurance). If you qualify, the insurer of your mortgage may be willing to give you a loan for the amount that you are delinquent. This is a non-interest loan that does not need repayment until the sale of the home or after the first mortgage is paid off.
Unfortunately, maintaining ownership of your current home is not always possible. You may not qualify for a repayment plan or loan modification. And you may not have private mortgage insurance on your loan. In some cases, you may be forced to sell the home. Even though this can be very difficult, it’s still a better solution than going all the way through foreclosure.
By selling your home yourself instead of waiting for a foreclosure sale, you can help preserve your credit history and make it easier for you to buy another house in the future. Here are three options to consider:
- Short Sale: The mortgage company may allow you to sell the home for less than what is owed. This option can be used before the Sheriff Sale, but prior arrangements need to be made with the mortgage company – in writing – before the official sale of the home.
- Traditional Home Sale: List the home for sale. This can be done before or after the Sheriff Sale is scheduled. However, to prevent the foreclosure from going on your record the sale must be complete before the actual Sheriff Sale date. If you are considering this option, alert your lender immediately.
- Deed-in-Lieu Agreement: In this case, the mortgage company may allow you to give back the deed to the home in exchange for a “forgiveness” of the debt. This must be done before a Sheriff Sale. The mortgage company may require you to have the home listed on the market for a period of time before considering this option.
Important Reminder: No matter what alternative you choose, stay in contact with the mortgage company at every step of the way and make sure they agree to your plan. There is no substitute for open, honest and frequent communication with your lender’s Loss Mitigation department.
Getting a New Job? You have up until the date of a Sheriff Sale to complete “work out” arrangements with your mortgage company. If you can re-establish sufficient income before that date to cover your essential household bills, then other options that involve keeping your home may become available to you.