Avoiding foreclosure - what are your options as a homeowner?

Please note that the following information is only intended as a resource, please make sure that you always receive professional legal and tax advice.

You will find here suggestions for various options when you realize as a homeowner that you will not be able, or have not been able, to make your mortgage payments. Keep in mind that not everyone qualifies for everything and each situation is particular, so they are no standard answers, just a list of suggestions and resources you may want ot consider.

Refinance
Under the Home Affordable Refinance Program, you might be able to refinance, even with no equity in the house.  It has to be your primary residence, you are current on your payments, your loan is owned by Fannie Mae or Freddie Mac and the loan is not more that 125% of the value of the house.  For more detail and see if you qualify, visit the Making Home Affordable website.

Lender workout
Your lender might be willing to work with you and keep you in your house.  Each lender has their own program and own requirements, so the best is always to contact your lender as soon as you realize that you will have a problem.
When contacting a lender, they will want some information from you, so make sure that you have gathered all the documentation ahead of time. Watch this YouTube video for a detail list.

What are some of the possible outcomes:

• Loan modifications:
  • Change your interest rate from a variable to a fixed
  • Extending the repayment period
  • Adding the missed payments to the loan
• Forbearance: you would be allowed reduced payments for a certain time period, with a plan to catch up

Some lenders participate to the Home Affordable Modification Program for homeowners with less than $729,750 in loan amount on their primary residence, monthly payments over 31% of their gross monthly income and a documented hardship. For more information on the program, detailed requirements and to see if you might qualify, visit the Making Home Affordable website.

Sale of the property
You might just decide that it is time to sell the house.  If you owe more than the expected proceed on the sale, this may be an issue to release the lien on the house if you cannot cover the difference.
Note that if you are able to pay the shortfall at the closing as a seller, the transaction will be a normal transaction, no particular issue to address.

In the case you are not able to pay the shortfall, then the sale will require the lender to approve the shortfall before you can sell the property – this is what is known as a short sale.  Again, each lender has his own internal process to approve such a transaction, but one thing that will be consistent is your obligation to prove a hardship.
Keep in mind that if you have more than one loan against your house, this will complicate the process, as each lender will want to be paid off and they each have to approve the transaction.

Based on your lender and your situation, you might be able to qualify for the Foreclosure Alternative Program, part of the Making Home Affordable initiative.  For more details visit that web site.

Deed in lieu of Foreclosure
In this case, you will agree with the lender to give the lender ownership of the property to satisfy your obligation.  Note that this is not accomplished by simply mailing in the keys!

Foreclosure
The lender is legally enforcing his right to be paid, the end of the procedure is the sheriff sale.  This will damage your credit much more than any of the above solutions.

Walking away
Get legal advice!