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Foreclosure Solutions

Options when facing Foreclosure:

  1. Do Nothing: If a homeowner does nothing, they most likely will lose their home at a foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information.
  2. Payoff/Refinance: Completely paying off the entire loan amount plus any default amount and fees. Usually, this is accomplished through a refinance of the debt. New debt is a normally higher interest rate and there may be a prepayment penalty because of the recent default. With this option, you will want to make sure there is equity in the home.
  3. Reinstatement: Completely paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
  4. Loan Modification: Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problems that caused the late payment.
  5. Forbearance: Lender may be able to arrange a repayment plan based on the homeowners financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
  6. Partial Claims: A loan from the lender for a 2nd loan to include back payments, costs and fees.
  7. Deed in Lieu of Foreclosure: Give the property back to the bank instead of the bank foreclosing. Banks generaly require the home to be well maintained, all mortgage payments and taxes must be current. Most loan applications ask if this has ever happened.
  8. Bankruptcy:This option can liquidate debt and/or allow more time.- Chapter 7 (Liquidation) To completely settle personal debt

    – Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.

    – Chapter 11 (Business Reorganization) A business debt solution

  9. Sale/Short Sale: Sale is if the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale (also known as a pre-foreclosure sale) can be negotiated with your lender by the Real Estate Professional if what is owed is more than the properties value.

Short Sale vs. Foreclosure

Credit Score

Successful Short Sale Foreclosure
A Short Sales effect can be as brief as 12 to 18 months. Only late payments on the mortgage will show. This can lower the score as little as 50 points A foreclosure may affect your credit score for over 3 years and can lower your score between 200 to 400 points

Credit History

Successful Short Sale Foreclosure
A Short Sale MAY NOT be reported on a person’s credit history A Foreclosure will stay on a person’s credit history for 7 years or more

Future Employment

Successful Short Sale Foreclosure
A short sale is not reported on a credit report and therefore should not be a challenge to employment Most employers require a credit check on all job applicants. Foreclosures are one of the most detrimental credit items for your credit report.

Fannie Mae

Successful Short Sale Foreclosure
The homeowner may be eligible for a Fannie Mae-backed mortgage after 2 years The homeowner is not eligible for a Fannie Mae- backed mortgage for at least 5 years

Conventional (late on payments)

Successful Short Sale Foreclosure
The homeowner may be eligible for a Fannie Mae-backed loan after 2 years The homeowner may not be eligible for a Fannie Mae-backed loan for 5 years

Conventional (current)

Successful Short Sale Foreclosure
There is NO WAIT for a Freddie-or Fannie-backed loan if current on all obligations, including installment debt Future rates may be affected if you have been foreclosed on in the past 7 years

Deficiency Judgment

Successful Short Sale Foreclosure
In some successful short sales it is possible to convince the lender to give up their right to pursue a deficiency judgment against the homeowner In 100% of Foreclosures (except in states where there is no deficiency protection in the law) the bank has the the right to pursue a deficiency judgment

FHA (late on payments)

Successful Short Sale Foreclosure
3 years from the date the FHA insurance is paid by the lender (not the date of the Short Sale closing) before a borrower may be eligible for another FHA loan The homeowner is not eligible for a Fannie Mae-backed mortgage for 5 years

FHA (current)

Successful Short Sale Foreclosure
There is NO WAIT for a Freddie – or Fannie-backed loan if current on all obligations,including installment debt The homeowner is not eligible for a Fannie Mae-backed mortgage for 5 years

VA (late on payments)

Successful Short Sale Foreclosure
The homeowner may be eligible for a Fannie Mae-backed loan after 2 years The homeowner may not be eligible for a Fannie Mae-backed loan for 2 years

VA (current)

Successful Short Sale Foreclosure
The homeowner may be eligible for a Fannie Mae-backed loan after 2 years The homeowner may not be eligible for a Fannie Mae-backed loan for 2 years

Foreclosure Timeline

foreclosure timeline

Advantages of a Short Sale

  • Avoid foreclosure on your credit
  • Avoid potential bankruptcy
  • Avoid being evicted from your home due to foreclosure
  • Less potential tax liabilities
  • Easier to clean up your credit and reduce the time it takes to re-qualify for future homeownership
  • Get out from underneath a depreciating asset
  • Lenders generally pay for normal and customary closing costs & real estate commissions
  • Can potentially avoid liability for their mortgage debt and negotiating on your own terms the delinquency judgment if it applies.
  • In most cases, sellers will have no out of pocket expenses unless requested by the Mortgage Servicer (s).
  • Homeowner education & clear understanding to make the best decision for your situation
  • You do not have to be late on your payments to get a short sale approved.

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