Short Sale and Foreclosure Options…
Short sales and foreclosures are not always the best option for the homeowner. If the situation which curtails income is temporary, the homeowner can ask for “forebearance”.
Forebearance involves negotiating a repayment plan for the amount of payments missed, ususally with penalities and interest. The missed payments can be put at the end of the mortgage amortization or an extra amount each month can be included in the regular mortgage payment. The lender will want to be assured of the homeowner’s ability to repay the newly negotiated amount and will ask for evidence such as pay stubs. The newly negotiated amount is in force until the deficiency is made current, and then the payment will revert to the amout prior to the default.
Reinstatement can occur if the homeowner is expecting funds which can be used to bring the delinquent loan current. An insurance settlement, an income tax refund, an inheritance, any anticipated source of funds which can be paid at one time to the lender to bring the loan current is called reinstatement. The homeowner should talk with the lender and explain these funds are anticipated and will be used for the loan. Reinstatement is a good option when one or two payments have been missed because of some extraordinary circumstance where restitution will be made. Like all other plans, the lender will want documentation of the event.
If the homeowner has the funds available and can qualify in today’s market, a refinance can be a good option. Rates are still very low and especially if there is an Arm (adjustable rate mortgage), very often a homeowner can cut the amount of payments. Remember however, that if the homeowner has owned the property for six years and refianced to another 30 year mortgage, the clock starts ticking again for another 30 year mortgage. However, this option may provide the breathing room necessary but the homeowner should be sure to request a fixed rate mortgage to avoid further surprises. Homeowners must provide all the documentation necessary to the lender including pay stubs, tax returns, assets and liabilities, divorce decrees, etc.
A Deed in Lieu of Foreclosure also called deed in lieu, is another homeowner option. The property must be worth more than the note on the property. The homeowner negotiates with the lender and agrees to send the keys of the property and turn the property over to the lender so the lender will not foreclose on the property.
Department of Housing and Urban Development: http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure
Fannie Mae: http://www.fanniemae.com/kb/index?page=home