Struggling Home Owners Have Options…

Unfortunately we are living in some difficult economic times. The housing market is struggling (to put it mildly) and unemployment has skyrocketed and is still rising. Countless homeowners are struggling to make their monthly mortgage payments or are upside down on their loan amounts. Things are tough and far too many people have faced or are facing foreclosure. For one segment of the population, it has become common to simply walk away from their properties and allow them to go into foreclosure. For another, foreclosure just catches up with them before they take action or even know what to do.

What is important for people to know is that there are options for avoiding foreclosure. So, what are they? Well, there are several ways to deal with the burden of mortgage debt and measures can be taken to avoid foreclosure.

Forbearance: This is where the lender will suspend or reduce a homeowner’s mortgage payments for a certain period of time. Once the forbearance period is up, however, the lender will require that the owner resume payments in full and will tack on the past due amounts to those monthly payments. So for as much as a year or more, that home owner may have payments that are 20-25% higher. In this economy that is not a reasonable option or solution for most home-owners. Forbearance is a program that would allow a borrower to get back on their feet for situations like finding a job or recovering from an illness but it may not help most people who are struggling these days.

Loan Modification: We have all heard of loan mods. This is where the lender will allow defaulted payment amounts to be added to the back end of the loan to help bring the borrower current and may lower the interest rate, make an adjustable rate fixed or perhaps extend the loan period out to 40 years. These are all in an effort to make the monthly payments more affordable. The problem is that it doesn’t address the issue of upside down mortgages and more importantly, most people don’t qualify for these programs because of their credit card payments, medical bills, student loans and other debts.

Short Sales: You may be familiar with this process. This is where a homeowner owes more to their lender than they could sell their home for. In a short sale, the lender agrees to allow the borrower to sell the home for less than it is worth and relieve them of their mortgage obligation. The upside to this option is that Fannie Mae states that the reduced mandatory waiting period to re-establish a credit history (and be able to buy a home again) is 2 years. That is in stark contrast to the 5-7 years required after a foreclosure. The process can be lengthy but can be of great benefit in the long run.

Deed in Lieu: This is where the home owner is in default and doesn’t have enough time to sell the property so they agree to transfer deed over to the lender. The lender then save tens of thousands of dollars in fee that would be associated with foreclosing on the home. Fannie Mae’s reduced mandatory waiting period is 4 years. That is better than 5-7 for foreclosure but double the time required after a short sale. Plus if you are going to go to the trouble and effort to work with the bank anyway, short sales may really be a better option.

If you have additional question or comments or are in a position where you need to examine these options further for yourself, please contact us for a no-obligation and confidential evaluation.

Calabasas and Westside real estate and homes for sale


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