Ask the question, “Do you want to stay in your home and avoid foreclosure?”
a. If your answer is “YES”, we will explore the feasibility of some stay-in-your-home options - see below.
i. Reinstate the Loan
Pay all overdue payments plus late fees and penalties.
1. In a one-time lump sum payment or
2. Spread over time until you are caught up.
Once you have paid all your back payments, penalties, and fees, the loan can be reinstated, and you can transition back to your normal loan payment and terms.
ii. Loan Modification:
Loan modification is a change made to the terms of an existing loan by a lender. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three.
Such changes usually are made because the borrower is unable to repay the original loan. Most successful loan modification processes are negotiated with the help of an attorney or a settlement company. Some borrowers are eligible for government assistance in loan modification.
Key points to think about for this approach are:
a. A loan modification is typically granted to a borrower in financial crisis who can't repay the loan under its original terms.
b. Successful applicants typically are represented by legal or other professional counsel.
c. Some consumers have access to government programs that help mortgage-holders.
NOTE: Key source for the Loan Modification option above is at https://www.investopedia.com/terms/l/loan_modification.asp
Additional information about this option is also available at the link above.
iii. Refinance the Loan:
For some homeowners, financial hardship can strain their budgets and lead to the worry of foreclosure. If you’re in this situation, a rate and term refinance may be the answer.
You can potentially lock in a better interest rate or extend your term, leading to a lower monthly payment. Some lenders allow borrowers to roll their refinancing costs, such as closing costs, into the loan, which reduces the upfront cost of refinancing.
NOTE: Key source for the Refinance Option is at https://www.bing.com/search?q=refinance%20to%20avoid%20foreclosure&qs=ds&form=ATCVAJ
b. If your answer is “NO” or we determine that none of the stay-in-your-home options are feasible, we will continue with Step 2.
Compare the estimated value of your home with the amount of your loan plus back payments and late/missed payment fees.
a. Context: If we have reached Step 2, that means that (1) you decided that you do not want to remain in your home (even if it is possible to do so) or (2) we determined in Step 1 that staying in your home is not an option.
b. Process for Estimating Value of Your Home
i. Find comparable properties in the neighborhood (or as close to your home as possible) that have sold recently (as recent as possible).
ii. Make adjustments as required to make the comparable properties as close in features to your home as possible. See examples below:
1. Comparable Property 1: Has 2 ½ bathrooms and 3 bedrooms and assume for example that your home has two bathrooms and four bedrooms. We would subtract an amount for the extra half bath and add an amount for a fourth bedroom to adjust the comparable property sold price appropriately.
2. Comparable Property 2: Has 2 bathrooms and a swimming pool and assume for example that your home has 2 ½ bathrooms and no swimming pool. We would add an amount for the extra half bath and subtract an amount for the pool to adjust the comparable property sold price appropriately.
3. After making all the adjustments for differences and equalizing the comparable properties as much as possible, we would calculate an estimated value of your home based upon the adjusted comparable home sold prices.
iii. Subtract estimated closing costs and commission from the estimated value of your home (the amount calculated in Step 2(b)(ii)(3) above)
iv. Compare the result in the preceding step (Estimated Value of Your Home) - (Estimated Closing Costs + Commission) to your Loan Balance (including back payments missed and fees).
c. Importance of this Step
This step, especially the comparison in Step 2(b)(4) above, determines the feasibility of selling your home and avoiding foreclosure versus being forced to vacate your home.
1. Review the results of Step 2 and select one of the options below:
a. Deed in Lieu of Foreclosure
i. Definition (as defined in Investopedia): In this process, the mortgagor deeds the collateral property, which is typically the home, back to the lender serving as the mortgagee in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith. The document is signed by the homeowner, notarized by a notary public, and recorded in public records.
ii. Drastic Step
This is a drastic step, usually taken only as a last resort when the property owner has exhausted all other options (such as a loan modification or a short sale) and has accepted the fact that they will lose their home.
iii. Minimize Embarrassment:
Although the homeowner will have to relinquish their property and relocate, they will be relieved of the burden of the loan. This process is usually done with less public visibility than a foreclosure, so it may allow the property owner to minimize their embarrassment and keep their situation more private.
iv. Deficiency Waiver
If you live in a state where you are responsible for any loan deficiency—the difference between the property's value and the amount you still owe on the mortgage—ask your lender to waive the deficiency and get it in writing.
v. Effect on Credit Rating
A deed in lieu of foreclosure will negatively impact your credit score and remain on your credit report for four years. According to experts, your credit can expect to take a 50 to 125 point hit by doing so (which is less than the 150 to 240 points or more resulting from a foreclosure).
NOTE: Key source for the Deed in Lieu of Foreclosure option above is at
Additional information about this option is also available at the link above.
b. Short Sale:
i. Sell your Home for Less than Loan Balance
If you don't want or need to hold on to the home, then a short sale could be another alternative to a deed in lieu of foreclosure or a foreclosure proceeding. In a short sale, the lender agrees to let you sell the home for less than what's owed on the mortgage.
A short sale could allow you to walk away from the home with less credit score damage than a foreclosure would. But you may still owe any deficiency in balance left after the sale, depending on your lender's policies and the laws in your state. It is important to check with the lender beforehand to determine whether you'll be responsible for any remaining loan balance when the house sells.
ii. Short Sale vs Foreclosure
1. Short sale is a voluntary action by the homeowner, while foreclosure is involuntary.
2. Short sale requires approval from the lender, while foreclosure is initiated by the lender.
3. In a short sale, the homeowner sells the property for less than the outstanding mortgage with the lender’s consent. In a foreclosure, the lender seizes and sells the property.
4. Homeowners who use short sales are responsible for any deficiencies payable to the lender.
iii. Effect on Credit Rating
A short sale could impact your credit scores as long as it remains in your credit reports, which may be up to seven years—similar to many other negative marks. If the short sale was preceded by one or more late payments, the seven-year timeline starts with the date of first delinquency that led to the short sale.
If you never missed a payment, the mortgage account will fall off your credit report seven years after your account was reported as settled.
NOTE: Key source for the Short Sale option is at https://www.experian.com/blogs/ask-experian/how-does-a-short-sale-affect-credit/#:~:text=A%20short%20sale%20can%20hurt%20your%20credit%20scores,scoring%20model%20used%20to%20calculate%20your%20credit%20score.
Additional details about the short sale are also available at the link above.
c. List your House for Sale.
Two key questions that must be answered when choosing this option are:
i. Do you have enough equity in your home to achieve a financially acceptable closing?
ii. Is there enough time to list, sell, and close on your home before the foreclosure auction date?
Another key consideration is how well housing are selling at the time. This option works better in a seller’s market.
If you choose this option and receive and accept an offer, it must close before the auction date to avoid foreclosure. Therefore, if you have a solid contract, but need a little extra time to close before the auction date, you should highly consider asking the lender to postpone the auction date to allow enough time to close.
d. Sell your House to an Investor.
This option may be an appropriate choice in the following situation:
i. You have enough equity in your home to achieve a financially acceptable closing
ii. A fast closing is necessary (i.e., there is not enough time to list, sell, and close for the normal owner-occupied buyer to close before the auction date)
Investors can often make cash offers and close within less than 30 days.
e. Accept Your Situation
If you reach this point, foreclosure and the auctioning of your home is inevitable; foreclosure and the auction cannot be avoided. The best thing you can do is to accept your situation with a positive attitude and pray for God’s guidance.
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