Loan Modification

A loan modification is when your lender modifies the terms of the original note.  This includes decreasing the interest rate, re-amortizing the remaining balance, extending the terms of the loan, or other options your lender may offer.  

Generally a lender will consider a loan modification when the borrower is a victim of hardship and the borrower's income has been decreased or interest rate has adjusted. The homeowner will be able to keep the home after the loan modification has been approved.  

Mortgage Refinancing

Refinancing is when borrower chooses to refinance the existing mortgage and take out any cash from the equity they have within the home, thereby,  paying off the existing mortgage. Now a days, that option is nearly impossible, since most homes don't have enough equity and are upside down.  

The homeowner has to show outstanding credit history, meaning no delinquencies, and can prove that he or she can support the new mortgage payment.  

Second Mortgage, Line of Credit

The homeowner may take advantage of any equity they have in the home and do a cash out refinance.  The borrower, will be required to make an additional mortgage payment to cover the new second loan.  Interest rates on 2nd mortgages are typically very high, so it should be looked at with caution.  

A borrower may also be able to borrower money from his or her bank or against a 401K or pension to use to repay the deficiency and reinstate the loan.  Conditions may apply.

Sale of the Home

Selling your home is an alternative for borrowers that are unable to reinstate the loan and face eminent foreclosure.  This option allows a home owner to pay off the loan, and retain any remaining equity in the home. The lender may delay the foreclosure proceedings in order to allow sufficient time to sell the home.

Short Sale

In this current market, the lender may allow the borrower to sell the home when the proceeds from the sale are not sufficient to pay off the existing loan.  This is known as a short sale. Furthermore, the borrower may issued a 1099  and have to pay taxes on any loss the lender writes off from the short sale. There are loop holes, so a borrower should discuss the tax ramifications, if any, consult an accountant or attorney before agreeing to a short sale.

Deed-in-Lieu of Foreclosure (DIL)

A deed-in-lieu of foreclosure is a voluntary relinquishing of the title on your home to the lender.  Generally this should be done before the NOD has been issued and is usually the last attempt by the borrower to avoid the foreclosure.  In return for the voluntary conveyance of title to the lender, the borrower is often released of any personal responsibility for the mortgage.

Most lenders state that there must not be a second mortgage or junior liens on the property.  Homeowners who have enough equity within their home should consider selling the property before voluntarily conveying title to the lender.  

There is free help and assistance for home owners facing the possibility of foreclosure.  If you would like to talk with someone about your situation, click here.