Options: short sale, forclosure, deed in lieu? Help!

“What exactly are the different options and what do they mean?”

OPTIONS TO KEEP YOUR HOME

Refinance—A new mortgage on the loan with no change in ownership. The ability to refinance a loan requires that the borrower not be delinquent and that there be equity in the home.
Repayment Plan—Plan where delinquent payments are distributed over a period of time, usually no more that 12 months. The amount is added to usual mortgage payment resulting in a higher payment until the delinquent amount has been repaid. This plan brings the account current within a specific time period.
Loan Modification –Past-due interest and escrow to the unpaid balance, which is then amortized over a new term. Rate adjustments, term extensions and principal forgiveness may be considered. Loan modification results in permanent, contractual changes in one or more of the mortgage terms. Additional loan fees may be involved based on the type of mortgage a customer holds and on the specific investor. A loan modification immediately brings the account up-to-date.
Forbearance—A temporary reduction or suspension of the borrower’s payment. The repayment plan is based on the customer’s financial situation. Because of long-term implications, this option is used only in severe hardship cases.

OPTIONS TO NOT KEEP YOUR HOME
Sell the property—This is the best option if you cannot afford the mortgage payment and if the house is worth more than the amount owed.
Assumption—If allowed by loan documents and if you find another borrower willing and qualified to take over your mortgage. The new borrower must meet the lender’s criteria
Short Sale—If the market value is less than the total amount owed, a short sale allows the borrower to sell their home and use the proceeds to pay the mortgage even though the proceeds will not be sufficient to pay off the outstanding balance. The investor and mortgage insurer must agree to this.
Deed-in-Lieu of Foreclosure—The borrower transfers the property to the servicer if the home cannot be sold at market value. This option requires that the property be listed for a specific period of time, generally 90 days. There may be tax consequences.
Bankruptcy—Consumers do have the option of filing a Chapter 7 or Chapter 13 Bankruptcy if they need more time to pay a mortgage delinquency or need to restructure their debt so that they have funds available to pay secured debts. Either type of bankruptcy provides two important benefits:
1. Automatic Stay—If the debtor has not filed bankruptcy before, upon filing an automatic stay is put in place by the Bankruptcy Court. This means all other litigation against the debtor cannot proceed to conclusion without permission of the court. Further, all garnishments against a debtor’s income/bank account must stop as of the date of the bankruptcy filing. Any creditor who wishes to continue its action, including a foreclosure, must get permission of the Bankruptcy Court to proceed before continuing.
2. Time to Review Alleged Claims—Sometimes creditors, including mortgagees, claim amounts are due which the debtor may question. Review by the court of the claim is possible and erroneous charges can be corrected.
Chapter 7—Complete Liquidation. Allows the debtor to discharge most unsecured non-priority debts while retaining exempt property such as homestead. Can be use to reduce monthly payments thereby increasing available income to pay monthly mortgage amounts. Usually takes 4-8 months from filing to discharge to complete.
Chapter 13—Reorganization. Available to debtors over a certain level of income and provides him/her with the ability to work out a schedule of payments for the delinquent amounts owed on a mortgage over a 36-60 month time period. Also provides a mechanism to strip off second mortgages when there is no equity attached to that interest and “cram down” secured debt on non-residential property.

When selecting a Realtor to work with you, make certain they have experience with these kinds of transactions. This is a quickly-changing market – processes are constantly changing, forms are changing, terminology is changing, lender guidelines are changing. Your Realtor must have this knowledge in order to help you.

If you, your friends or your relatives need help please call us. The only thing worse than making the wrong decision, is to start the process too late.