People who are experiencing a difficult time in making their mortage payments need to know there are alternatives to just walking away. Good alternatives. The foreclosure avoidance options available to Pismo Beach & Central Coast area residents are many. Following is a brief explanation of these solutions, including their benefits and drawbacks:
Reinstatement
Although this is a simple solution, it requires a homeowner to pay the lender all past due payments, penalities and fees and can be done up to just days before the foreclosure sale. If a homeowner was in a very temporary situation where they were unable to make their payments, this could be a good option and requires no lender approval.
Forbearance Plan
A forbearance plan is a repayment of all back payments where the lender will add the past due payments on to the end of the loan or to the principal amount. A mortgage payment could wind up being higher so a homeowner would have to be in a good financial position once again.
Mortgage Modification
This can be a good option for homeowners in a distressed situation. If the lender agrees to a mortgage modification, sometimes the interest rate will be lowered and/or the principal amount owing reduced so that a homeowner can afford the payment. The homeowner has to qualify, have enough income to be able to make the new payment and the lender has to be willing to participate. Also the homeowner has to provide full documentation to the lender in order for the lender to approve a modification.
Deed in Lieu of Foreclosure
A Deed in Lieu is considered a friendly foreclosure in that the homeowner turns the home back to the lender. It is still a foreclosure and is reported as such. A lender has to agree to it and it usually only is done if there are no junior liens. Usually a lender will want a homeowner to try to short sale first.
Refinance
If a homeowner has good enough credit to refinance, it could be an option. There are fees the homeowner would need to pay to refinance including loan fees, escrow & title fees, etc. It may or may not lower the mortgage payment.
Servicemembers Civil Relief Act (Military Personnel only)
If a member of the Service entered into a home loan prior to deployment and after deployment is struggling to make the mortgage payments they may qualify for the Servicemembers Civil Relief Act. The service member may qualify for lower payments on their mortgage and other consumer debt. They must be active in the service. There is a network of attorneys through the American Bar Association that can help a service member in this situation.
Short Sale
If a homeowner finds himself in a distressed situation and cannot afford to make his payments, a short sale is often a very good alternative. A short sale takes place when a home’s value is lower than the payoff amount so the lender will be taking a short payoff. There needs to be a verifiable hardship due to unemployment or underemployment or reduced monthly income, divorce, medical issues, relocation of a job, etc. The lender has to agree to a short payoff and the homeowner has to provide documentation. In California a new law was passed at the beginning of the year that if the lender agrees to the short sale of a primary residence, they also agree to no deficiency judgment even if the homeowner has refinanced along the way. There is also the HAFA program that just underwent some big changes to make it easier for a homeowner to do a HAFA short sale and take advantage of the benefits it entails. Also there is no charge to the homeowner for participating in a short sale–the lender pays the commission and the closing fees.
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Ocean Breeze Real Estate assumes no responsibility nor guarantees the accuracy of this information and is not engaged in the practice of law nor gives legal advice. It is strongly recommended that you seek appropriate professional counsel regarding your rights as a homeowner. DRE# 01388410 & 01415177