Options for Homeowners in Distress

Today, I would like to share information that is specific to homeowners that find themselves in distress and are not sure whom to turn to, or where to go for help.

Many homeowners that are in distress may have experienced a job loss, or a cut in pay, had a business fail, and/or illness and medical costs, had a divorce or death of a spouse, or even a natural disaster, like the recent flooding here in Arizona.

There are many reasons why a homeowner may be in distress. Today you are going to find out what options are available, to you, the homeowner, and where you can go for help.

Options for Homeowners in Distress!

1. Refinance. If your credit allows for a refinance and if you meet the eligibility criteria, an option is HOPE for Homeowners (H4H) a program available through the U.S. Department of Housing and Urban Development (HUD). Click here for more information.

2. Lender Workout. Lenders often will work with distressed homeowners to help them keep their homes by reducing or rolling back interest rates, forgiving back payments, adding them to the loan amount, or possibly recasting the entire loan and wrapping all fees into a fixed-rate mortgage.

Loan Workout Options

Forbearance. Lenders may let you make a partial payment, or skip payments, if you have a reasonable plan to catch up. Tell your lender if you expect a tax refund, a bonus, or a new job.

Reinstatement. Reinstatement refers to making a payment that covers all your late payments, usually at the end of a forbearance period.

Repayment Plan. If you can't afford reinstatement, but can start making payments to catch up, the lender may let you pay an additional amount each month until you are caught up.

Loan Modification. Your lender may agree to amend your mortgage to help you avoid foreclosure. The options include:

• Adding all the missed payments to the loan amount and increasing the monthly payment to cover the larger loan.
• Giving you more years to pay off the loan, lowering the interest rate, and/or forgiving part of the loan, to lower your monthly payment.
• Switching from an adjustable-rate mortgage to a fixed rate mortgage, so you aren't exposed to increases in your monthly payment.
• Requiring amounts for taxes and insurance to be included with your monthly mortgage payment so you avoid big bills in addition to your mortgage.
• Sign Over the Property to the Lender in Exchange for Debt Forgiveness. This can hurt your credit, but is better than having a foreclosure in your credit history.
  

Source: Reprinted with permission from the National Association of REALTORS and the Center for Responsible Lending. Are You Having Problems Paying Your Mortgage? Learn How to Avoid Foreclosure and Keep Your Home. Available at: www.Realtor.org.

3. Deed in Lieu of Foreclosure. A deed in lieu of foreclosure occurs when the borrower agrees to trade the property to the lender in exchange for the cancellation of the note. This foreclosure alternative is more likely to work in states where there is a long foreclosure timeline. The lender will be able to get the property much sooner. In the state of Arizona, the foreclosure process is short. From date of Notice of Foreclosure, to Trustee Sale, is only 90 days.

4. Sell and Bring Cash to Closing. If you owe more on your home than your home is worth, you could sell your home and bring cash to cure the deficiencies at closing. By curing deficiencies at closing, homeowners can avoid the credit damage that a short sale or foreclosure can cause. Unfortunately, most homeowners today do not have the cash or the assets to liquidate, to make up the amount owed on the property vs. the amount the property sold for. If this is an option for you, it is very important that you consult with finance and tax professionals before bringing liquid assets to the closing.

5. Short Sale. If the above options are not going to work for you, the next best option to avoid foreclosure is to do a short sale. A short sale is necessary when the homeowner owes more on the property than the property is worth. A short sale is a good option for the homeowner when the above options do not apply to their situation. A short sale occurs when a negotiation is entered into with the homeowner's mortgage company or companies to accept less than the full balance of the loan at closing. It is very important to have a REALTOR that is experienced in short sales. A short sale is not an easy endeavor to accomplish. It takes a great deal of knowledge, skill, and hard work from the REALTOR listing the short sale. A cooperative seller is a must. A seller that sells their home through a short sale may be eligible to purchase another home after 2 years. Your credit will not take as big a hit as a bankruptcy or foreclosure. More information on Short Sales can be found on my website: www.HomeBuyerInformationAZ.com

6. Bankruptcy. A bankruptcy may stop a foreclosure and allow a homeowner to reorganize his debt and keep his property. The reality however is that most of the time this is not the case and the bankruptcy only stalls the foreclosure. If you are not able to make the payments after bankruptcy the house will foreclose anyway.

The other major drawback to bankruptcy is that it makes it very difficult for you, the homeowner, to sell your property once you enter the process. It makes it near to impossible to negotiate a short sale.

7. Foreclosure. Reasons to Avoid Foreclosure.

If you foreclose on your mortgage you will always have to disclose that you have had a foreclosure on any mortgage application and many job applications that you submit in the future. This is the only credit item that is asked specifically and does not rely on what is on an individuals credit report.

Credit scores will be lowered by 300+ points and a foreclosure is the most devastating credit issue you can have in relation to future credit availability. A foreclosure is the one credit report item that is almost impossible to have "repaired".

These are only some of the issues that face the homeowner that forecloses. I will cover more about foreclosures in another blog.

It is always important to seek the advice of a lawyer or tax professional when trying to decide the best solution for your particular situation.

You can avoid foreclosure! Get informed, and get advice from a legitimate source. For more information contact me at Kelly@firebirdrealty.com.