Both the federal and the Massachusetts governments have worked to develop programs that would allow certain borrowers at risk of default to refinance their homes via governmentally insured programs. The homeowner may be able to avail him or herself of such a program.
A lender may be willing to rewrite the terms of the homeowner’s loan in order to address a delinquency. Make sure you enter into a loan modification to make your monthly payment more affordable. A loan modification is intended to serve as a long-term solution when the monthly payments under the original loan terms are unsustainable for the borrower. It may require the homeowner to pay a processing fee, but already-distressed borrowers should strive to avoid or minimize fees. Loan Modification Help from Loss Mitigation Services.
You may work with the lender to create a temporary repayment plan or “forbearance plan.” It will enable you to bring the loan current over a period of time and either keep the property or allow time to market and sell the property without the pressure or cost of an impending foreclosure action. Some lenders will enter into forbearance plans that do not fully bring the loan current if they are aware the homeowner is marketing the property for sale. But if your monthly payment is beyond your means, you should pursue a “loan modification.”
Bankruptcy might be an option for a homeowner to consider. The filing of a bankruptcy petition automatically stops a lender’s foreclosure action until such time as the lender obtains the Bankruptcy Court’s permission to proceed. Consult with an attorney about whether bankruptcy might be advisable for you.
Deed in Lieu
A consumer willingly signs over the deed to the property back to the mortgage holder. In a deed in lieu the lender may have the right to pursue the seller for the deficiency, or the difference between the amount of the original loan and the amount that the lender is able to get at a future sale as an REO property. A deed in lieu is better than a foreclosure, but has less benefits than a short sale.
Safe alternative to foreclosure which provides responsible property owners that ability to sell their underwater property in a controlled manner, without facing eviction or the prospect of destroying their credit. Recent FHA guidelines allow consumers that participate in a short to qualify for financing within a year of the short sale. Lenders may also offer additional incentives to sellers in a short sale because the cost of completing a short sale is significantly less than a foreclosure option.
For more information on the benefits of a short sale vs foreclosure see: Short Sale vs Foreclosure at Loss Mitigation Services Massachusetts.
Foreclosure Consequences – Downsides of Foreclosure:
- Credit score affected by 200 or more points
- Public record for 7 years
- Extremely difficult to get financing for another property after foreclosure
- Deficiency risk – Your lender may sue you fore the difference between net proceeds and outstanding mortgage
- Tax liability
- Professional considerations – credit profile can affect your career
Benefits of a short sale:
- Avoid foreclosure
- Minimize damage to credit, a short sale may have as little as a 50 point affect on credit
- Purchase a home within 1 year (FHA now offers programs for financing for borrowers that have short sold)
- Have control over when you vacate the property
- Qualify for possible short sale incentive payments