Temporary and Permanent Alternatives to Foreclosure
The past and current states of the economy have meant foreclosure for many home owners. All the changes that have been brought about over the last several years are making many people antsy about their futures. The good news is there are both temporary and permanent alternatives to foreclosure that just may solve many problems.
The state of each individual home owner’s mortgage has an effect on the real estate market as a whole. The alternatives to foreclosure will help with recovery. If you are in a situation that is prompting you to make such a decision, you’ll want to explore all your options before settling on the one that is best for your specific needs. Below are a few worth examining.
Temporary alternative: The Advanced Claim
This option is for home owners whose need is truly temporary. If you are having short-term difficulties, this may be the option for you. Here, the insurer will pay the amount of delinquency to the servicer in return for a promissory note from the borrower. The borrower’s mortgage loan is then whole. The insurer, in turn, collects part or all of the borrower’s advance over time.
Temporary Alternative: A Forbearance Plan
Again, this option is for keeping owners with temporary problems in their homes. It is most often used for borrowers with temporary reductions in income, but long-term prospects for income increases. Here, such increases must be able to sustain the mortgage obligations. It may also work for troubled borrowers who wish to sell properties on their own. The forbearance period may range from six to 18 months, or even longer in some cases. Here, the borrower’s specific circumstances are taken into consideration. During this time, borrowers may be allowed to make reduced monthly payments. As time goes by, the payment amounts will increase, thus eliminating the delinquency. It is important to note forbearance plans may be consider a servicer matter, which can lead to the loss of homes for some owners. Because of this, they are only used when necessary and will certainly not fit every borrower’s needs.
Permanent Alternative: A Loan Modification
This may be used for home owners who are experiencing a permanent reduction in income. Loan documents can be modified in a variety of ways, but the two that are most common are interest rate reductions and term extensions.
Loans with interest rates that are above market can be modified through refinancing. Here, the interest is adjusted to the market rate, and the borrower charged the amount of the standard origination fee that is affordable. If the interest is either at or below the current market rate, monthly payments can be reduced by extending the mortgage term. This will be a permanent reduction and may even mean a new 30 year amortization schedule.
Permanent Alternative: Deed In-Lieu of Foreclosure
This is a last resort. Here, the borrower voluntarily conveys the property rights to the lending bank. This bank is known as the servicer. This is not a new practice, but may not be the best permanent option. Though it may appear better than a foreclosure on the borrower’s credit, professional council is recommended to determine whether or not it is the best option. The process involves the borrower signing over the property deed, so careful consideration is crucial.