Foreclosure: Know Your Options
Your lender may be able to offer you an alternative to foreclosure.
If you are having trouble making your mortgage payments, there are a variety of mortgage programs available to help you keep your home. You may be eligible to permanently modify your mortgage to make your payments and terms more manageable. If you do not qualify for a permanent modification and have only missed a few payments, you may qualify for a temporary solution. However, depending on your circumstances, you may not be able to keep your home. In this case, a short sale or deed-in-lieu of foreclosure may be a better alternative than foreclosure. Here are some of the options that may be made available to you:
In reinstatement, you agree to pay the lender the entire past-due amount, plus any late fees and/or penalties, by a certain agreed-upon date. This option may be appropriate if paying your mortgage is temporary problem.
The lender may agree to a repayment plan. Under a repayment plan, the lender will divide the late payment(s) up and add them on to future monthly payments.
The lender may agree to temporarily agree to reduce or suspend monthly payments for a period of time - such as six months. At the end of the forbearance period, regular payments will resume and the missed payments will be added on.
The lender may agree to adjust the terms of the loan to make it affordable. They may lengthen the term of your loan, lower the interest rate or fold the past due amount into the loan and re-amortize the new balance (i.e. recalculate your payment schedule) so that you can pay the additional debt back over time. A modification may result in one or more of the following:
- Reducing or fixing the interest rate temporarily or permanently
- Extending the term of the loan
- Deferring or capitalizing past due amounts
- Deferring principal causing a balloon payment to be due at maturity or some other date
- Conditionally or unconditionally forgiving a portion of the debt
The federal Making Home Affordable program has loan modification options to help borrowers obtain more affordable loans. For more information about these programs, visit www.MakingHomeAffordable.gov.
Home Affordable Modification Program (HAMP)
HAMP is a loan modification program that is part of a federal stabilization plan called Making Home Affordable. You may qualify for a HAMP modification if your home is your primary residence, the amount you owe on your first mortgage is equal to or less than $729,750, you got your mortgage before January 1, 2009 and you are paying more than 31% of your current gross income on your first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues). Unemployed borrowers may also be entitled to have their mortgage payments temporarily reduced for 3 to 6 months while they look for a new job.
Home Affordable Foreclosure Alternatives (HAFA) Program
Hafa is designed to reach those borrowers – both those who are in default and those who are at imminent risk of default – who are eligible for but unsuccessful under the Home Affordable Modification Program (HAMP). HAFA streamlines and standardizes industry practices for pre-foreclosure sales and deed-in-lieu to provide eligible borrowers with an alternative to foreclosure. You may be eligible for HAFA if you live in the home or have lived there within the last 12 months, you have a documented financial hardship, you have not purchased a new house within the last 12 months, your first mortgage is less than $729,750, and you obtained your mortgage on or before January 1, 2009.
Home Affordable Unemployment Program (UP)
If you are unemployed and depending on your situation, MHA's Home Affordable Unemployment Program (UP) may reduce your mortgage payments to 31 percent of your income or suspend them altogether for 12 months or more.
Although refinancing options are not as widely available as they once were, you should still check to see whether your lender or another lender will refinance your mortgage. The federal Making Home Affordable program has two refinancing options to help borrowers get into more affordable loans. For more information about these programs, visit www.MakingHomeAffordable.gov.
Home Affordable Refinancing Program (HARP)
HARP is a refinance program designed to help homeowners with loans guaranteed or owned by Freddie Mac or Fannie Mae. You may be eligible for refinancing under HARP if you own a 1-4 family dwelling, your first mortgage does not exceed 125% of the current market value of your home and you haven’t been more than 30-days late on your mortgage payment in the last 12 months.
FHA Refinance Option
This option is for homeowners who do not currently have an FHA mortgage and who owe more on their mortgage than their homes are worth. Homeowners must be current on their mortgage and occupy their home as their primary residence.
In a short sale the lender agrees to let you sell the house for less than the outstanding loan amount. The lender then takes the proceeds from the sale and forgives the remaining debt. This is commonly used when a home owner is experiencing a hardship and has been unsuccessful in selling the home at market value or an amount that covers what is owed. Servicers may suspend foreclosure action for a reasonable period of time to allow the homeowner to review and close an approved transaction. Although, the lender will not usually pursue the homeowner for any deficiency judgment, the lender cannot be prevented from doing so. Any junior liens (other claims to the property besides the lender) must agree to the sale.
Deed-in-lieu of Foreclosure
With a deed-in-lieu of foreclosure, you surrender the home to the bank and they sell it. You may qualify if:
- You are in default and don’t qualify for any of the other options;
- Your attempts at selling the house before foreclosure were unsuccessful
Servicemembers Civil Relief Act
If you are in the military, you may be able to delay foreclosure or get a reduced interest rate under the Servicemembers Civil Relief Act. Similar relief is available for victims of natural disasters.
Chapter 13 Bankruptcy
Filing for bankruptcy will temporarily halt the foreclosure process and may force the mortgage lender to accept a more borrower-friendly repayment plan. But a bankruptcy should only be considered as an absolute last resort. A bankruptcy will remain on your credit report for ten years.
FHA Disaster Relief
If your home or your ability to make your mortgage payments have been harmed by an event that the President has declared a natural disaster, you may qualify for FHA Disaster Relief to help you keep your home.
If you have an FHA/HUD loan, you may be eligible for a partial claim. This is a one time payment to bring your mortgage current. You don’t have to repay until the original mortgage is paid off or you sell your home. See some frequently asked questions about HUD’s partial claim option at www.hud.gov.
MAP Emergency Mortgage Assistance
New York City has established a Mortgage Assistance Program (MAP) to keep households at risk of foreclosure in their home. MAP loans can be for amounts of up to $25,000 and are targeted to certain neighborhoods in NYC most affected by the foreclosure crisis. To find out if you meet the eligibility requirements for the program, visit: NYC.gov or call 311.