How to Stop a Foreclosure – Step 2

After a homeowner has examined their financial and personal position in step one, they are ready to evaluate the foreclosure solutions to see which one(s) will meet their needs.

Weighing the Foreclosure Solutions

Make realistic choices. Evaluate the potential workout options:

1. If you choose to pursue a foreclosure prevention program with your lender/servicer
   1. Complete the budget documentation and gather proof of income and expenses.
   2. If a foreclosure sale is pending, request a delay in order to have enough time to workout an alternative to foreclosure.
      1. Once a foreclosure sale takes place, it will generally eliminate all workout possibilities.
      2. Your request is more likely to be taken seriously if you provide some initial financial information (budget, income and expenses) demonstrating the potential for a reasonable workout.
2. Repayment Plan: A repayment plan involves making your regular monthly payments with an additional amount to cure the default. The repayment period can be anywhere from three months to a year or longer. This option would most likely benefit a homeowner who has experienced a temporary financial set back but has since restored their footing.
3. Forbearance: A forbearance plan provides a homeowner with reduced or suspended payments, typically with the expectation that at the end of the forbearance period that a homeowner will make additional payments, on top of the regular monthly mortgage payments, to cover the arrears that accumulated during the period.
4. Modification: A modification can eliminate the past due payments and reduce the monthly mortgage payments to a level that is in line with a homeowner’s current income level. There are a few options that a lender can offer a struggling homeowner:
   1. Interest Rate Reduction: The interest rate on a home loan may be reduced temporarily or permanently and a loan may be converted from a variable interest rate to a fixed rate loan.
   2. Extension of Loan Repayment Period: Extending the amount of time, or period, for which a loan is repaid reduces the monthly payments.
   3. Reamortization with Capitalization of Arrears: When your arrears are capitalized and then reamortized the back payments are added to the loan principal and then recalculated using the existing interest rate. This will cause your payments to increase slightly. If a reamortization can be combined with another modification such as an interest rate reduction, extension of the loan term or cancellation of principal, your payments could be significantly reduced.
   4. Reduction of Principal Balance: A reduction of the principal balance may be considered by the lender or mortgage holder if the value of the property is less than the loan amount due to depreciation. A reduction may also be achieved through litigation, meaning a case through court.
5. Short Sales: A short sale, as the name might indicate, is the sale of a home for less than the amount due on the mortgage. Generally, the sale price must be close to the appraised value of the property for it to be acceptable to the mortgage holder.
6. Preforeclosure Sales: If there is enough equity in a home where a mortgage holder feels that their interest will be protected if the home is sold, there is a possibility that a delay in the foreclosure of the home may be granted.
7. Deed in Lieu of Foreclosure: A deed in lieu of foreclosure is a transfer of the property to the mortgage holder, and it is possible when there are no other liens on the property, such as a second mortgage. A mortgage holder may require the homeowner to attempt to sell the property before accepting a deed in lieu.
8. Assumptions: Some mortgages can be taken over, or assumed, by someone else, a third party. Once a home is transferred in these cases the new owner picks up the payments on the mortgage, and any arrears that may have accumulated. Unless the original loan documents have a “due on sale” clause, meaning that a loan is due in full upon sale or transfer of the property, the mortgage should be assumable. Even if there is a due on sale provision, it is generally difficult for a mortgage holder to block a transfer from parent to child, and sometimes a mortgage holder will allow an assumption if it means they will start receiving payments from a third party.
9. Bankruptcy: A bankruptcy filing can help a homeowner temporarily delay a foreclosure and in the long run restructure the debt that is owed. Bankruptcy can be pursued regardless of workout negotiations.
10. Litigation: Litigation can be pursued if a homeowner believes that an error occurred on his original home loan or during the servicing of such loan, and if there appears to have been any abuse. You can review this checklist identifying predatory lending to quickly determine if there are any blatant abuses or mistakes with your home loan. It is strongly advised that in cases involving litigation that a homeowner contact an attorney for representation.

Another option available to a homeowner, that is not necessarily a workout option, is staying in the home until eviction allowing for the most amount of time to get your situation in order.

Next Step…

The final step in determining the most appropriate foreclosure solutions is to figure out the best way to take action, whether you can do it alone or if getting professional home foreclosure help is needed.

1. Step 1: Personal finances analysis
2. Step 2: Finding the best foreclosure solutions
3. Next >> Step 3: Taking action, getting the right home foreclosure help

More Information

• Loan Modifications
• Short Sales
• Bankruptcy
• Foreclosure Rights, Laws that Protect You
• All Worksheets, Forms and Sample Documentation