While loan modification and bankruptcy are the most popular strategies for getting foreclosure help, there are many other tactics that can be considered. These techniques can either result in the borrower keeping the home or losing the home, but the primary benefit is minimizing the damage to creditworthiness.
The first thing to remember when seeking foreclosure help is that the lender may also view this as a last resort and could be persuaded to put it aside. A settlement solution can be negotiated with the bank where the borrower can keep the home if the financial hardship is temporary, or lose the home if they assume they can no longer make the mortgage payments. In the second alternative, the debtor loses property but avoids foreclosure and the damage to their creditworthiness is minimized, making it easier for them to get another mortgage in the future.
One strategy for getting help with foreclosure is the forbearance agreement, in which monthly payments are temporarily reduced during the duration of the financial hardship. However, the borrower must document the financial situation and demonstrate their ability to continue making payments after the current term expires.
Another strategy is loan modification, where the amount past due, which includes the penalty fees and attorney’s fees, is added to the outstanding balance and the duration or term is extended to minimize the increase in monthly payments. Refinancing is somewhat similar to loan modification. In this technique, a new loan is created with lower interest rates and the cash received is used to pay off the current loan. The federal government’s foreclosure assistance focuses on these two methods.
For homeowners who have accumulated a significant amount of equity and whose financial distress is temporary, foreclosure help can come in the form of a second mortgage. The proceeds can be used to pay the arrears and there may even be some extra cash for other uses.
However, with no solution in sight to the current financial problem, the homeowner must abandon the home while avoiding foreclosure and its damaging effects on one’s credit score. One method is deed in which the borrower assigns ownership to the lender. Another option is a short sale, where the property is sold for less than the amount owed, but the bank agrees to accept the amount as full payment on the loan. However, all lienholders must agree to the short sale.
Another way out for the homeowner is the private investor leaseback, where the investor agrees to buy the property. This will pay off the mortgage and end the foreclosure proceedings. The investor then rents the property to the homeowner. It’s also possible that the investor is attempting to short-sell the lender and then rent the home to the borrower.