While I specialize in Short Sales, they are not always the right answer for everybody.  Let me take a moment to explain the various options you have once you have missed a payment or are in jeopardy of being in default.  While I get no commission from any of these options except a Short Sale, it is far more important to me for you to get the right advice and make the best choice for your own future.

The Alternatives to Foreclosure

  1. Reinstatement:  This option is available right up to the moment the bank completes the foreclosure process.  Reinstatement means paying all past due mortgage payments through the current date, along with any legal fees involved.  You are then back to “normal” with the mortgage and you keep paying as you agreed originally.  The process begins with requesting a Reinstatement Letter from the lender to get the exact amount with fees.  When is this right for you?  If the reason you got behind was temporary and you managed to get enough money together to bring the loan current.  It is the best option as it does the least damage to your credit report – it just appears as late payments.
  2. Forebearance or Re-Payment Plan: This option must be negotiated with the lender, and is typically viable up until a few days to a couple of weeks before the foreclosure is completed.  The principle is similar to Reinstatement – pay the full outstanding balance, but with this method you do it over time (or add it to the end of the loan) instead of all at once.  This requires negotiation and proof of income.  Make sure you get the entire details of the agreement in writing!
    ** There is a small twist you should be aware of: The mortgage is not fully reinstated until the entire past-due amount is repaid (along with the fees).  If you miss just one payment, you can end up right back at square one.
  3. Sell the property:  If you have enough equity in the property to cover the mortgage, past-due payments, and all the expenses of the sale, you can sell the property to satisfy the mortgage.  I will certainly help you salvage as much as possible of your investment.  Like Reinstatement, the negative consequence to your credit report is simply the missed payments.  However, you may get far less of your equity out of the house than you would like.
  4. Rent the property: If the mortgage payments are low enough, it may be possible to rent the property for enough to cover the mortgage and possibly catch up on the past-due amount. This often only works in the short-term if the rent does not cover all of the monthly expenses (including taxes and insurance), the renter moves, or the renter simply stops paying his mortgage.
  5. Refinance: If there is sufficient equity in the property, your income will allow you to make the payments, and your credit has not been too badly damaged, then refinancing the mortgage may be the correct option.  This option does not work unless the difficulty that caused the payments to be missed has been resolved, and it might also involve higher mortgage payments.
  6. Mortgage Modification:  If the problem causing the default has been solved, and you can make mortgage payments close to your original amount, the lender may consider a loan modification. In essence, a loan modification is for a similar to a lower interest refinance where the lender lowers the interest rate on the existing loan in order to lower the payments. You are likely to need to go through an application process at least as thorough, if not more so, than the application for the original mortgage.  If possible, given your situation, this is likely to be the best option to keep your property.
  7. Short-refinance: This is a relatively new phenomenon that shows just how far some mortgage companies and lenders are going to avoid foreclosure properties.  The process involves a refinance, as discussed above, combined with a reduction in the principle balance and often a reduction of the interest rate as well. It requires proof of hardship as well as proof of the ability to pay the mortgage — a far more thorough application than the original mortgage.
  8. Deed-in-Lieu of foreclosure: This option is sometimes referred to as a friendly foreclosure since it simply involves giving the deep back to the bank. This may prevent the banks from having to go through a lengthy foreclosure process and in exchange they will sometimes forgo their rights to a deficiency judgment. This typically works in the case where there is only one mortgage, and there are no other liens — although there are exceptions. If you have equity in the property, this is unlikely to be the best answer for you.
  9. Bankruptcy: A bankruptcy may stop a foreclosure, provide time to reorganize debt, and allow you to keep your property. The reality, however, is that most of the time this is not the case of the bankruptcy only stalls the foreclosure. The other major drawback is that it makes it rate difficult to sell the property once the process begins. The bankruptcy process makes it extremely difficult, though not impossible, to negotiate a short sale.
  10. Servicemembers Civil Relief Act (SCRA): The SCRA is a bill that was signed into law in December of 2003. This law provides certain protections to military personnel that are in or closure in specific circumstances. It is only available to military personnel on active duty. If you are active-duty military, first thank you for your service, and you may wish to discuss your options with your commanding officer.
  11. Short sale: Now we get to my specialty.  A short sale is one the property is sold for less than the outstanding balances of any mortgages, yet the lenders agreed to release all liens on the property. There are far more details on short sales to be found on my frequently-asked questions page.

This has been a very brief discussion of the variety of options to avoid a foreclosure. The only way to find the right answer for you, however, is to discuss your situation in detail so that I can find the best match for your circumstance. I look forward to your call, and to helping you protect your financial future.