Home buying, investing, and selling information in the Greater Boston area
Shane Engel
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6 Options if you can’t make mortgage payments and are facing the threat of Foreclosure in Massachusetts

worried woman

 

 

How to Handle a Late Mortgage Payment

Financial difficulties can be created by a number of circumstances.

I have seen enough situations to feel like I have “seen it all,” and I know better than to judge people who are facing such difficult circumstances. Life events such as illness, divorce, loss of a job, or any number of other factors which might be out of your control could be affecting your ability to cope.

Life is hard. The stark reality is that, despite the facts about what is causing financial difficulty,  problems making mortgage payments tend to get worse with time (if the homeowner chooses to try to ignore or delay them, rather than deal with them.)

Now for the “good news”: You do have options.

The key is to minimizing the negative effect of late mortgage payments is to (a) know your options and (b) choose the option which is the best solution to your situation.

 

Foreclosure Alternative #1: Reinstate (catch up on missed payments)

This option is impossible for most people as it requires you to pay all of the past due monthly bills PLUS any additional amounts (legal fees, late fees, etc.).

Even if you pawn all your stuff or grandma loans you the money, you still might not be able to reinstate. If the foreclosure sale date is too close, lenders often refuse to provide payoffs in time or won’t accept your money, resulting in foreclosure.

 

This option requires quick access to relatively large amounts of cash.

Foreclosure Alternative #2: Bankruptcy

This option will definitely stop the foreclosure, but ONLY TEMPORARILY. And, to boot, bankruptcy has the effect of virtually ruining one’s credit for years after the filing.

Sadly, almost all Chapter 13 bankruptcy foreclosure plans fail. Most people do not realize that bankruptcy only works if you had a temporary hardship and will be able to make your regular payment plus an additional payment as required in order to catch up on what you owe.

In short, bankruptcy is an extreme option that if used properly can help resolve foreclosure issues. Unless you want wipe out all your debts including your mortgage, better options should strongly be considered before proceeding with bankruptcy.

 

This is rarely the best option unless you can begin making payments within 30 days and you do not care about your credit.

Foreclosure Alternative #3: Forbearance

This is where the mortgage lender does not change the amount owed, but they extend the life of the loan by (a) bringing the loan current and (b) putting the past-due amount (plus legal fees, late fees, etc.) on the back end of the loan. So, in this case, the past-due amounts still must be paid by the borrower, but the borrower has more time to pay off the loan.

 

Unless the root causes (of inability to make regular mortgage payments) have been resolved, “forbearance” is merely delaying the inevitable. If that is the case, the homeowner will likely find themselves in the same position in the future.

Foreclosure Alternative #4: Loan Modification

This is a possible option for those who fell behind temporarily but can afford to resume making regular payments.

Loan modification agreements can take several forms. The bank can: reduce your payment, reduce your interest rate, or reduce your principle amount.

Sadly, only 7% of loan modification applicants obtain the relief they seek. Most of the time, the reduction of the required monthly payment is not enough to keep the homeowner from falling behind again. The statistics show that over half of all people who receive loan modications will fall behind again within the next six months.

 

This can be a great option as long as the loan modification significantly lowers the payment (or balance) and you can afford the payments. This is an option that is worth checking out, but we caution people not to set their hopes too high.

Foreclosure Alternative #5: Deed-in-lieu of foreclosure

The borrower, in this scenario, signs the deed over to the lender before they foreclose. The effects of this action are very similar to an actual foreclosure, except it is a slightly more favorable outcome for the borrower and the lender. Because there are fewer legal fees, court costs, etc., it is a more cost-effective solution for the lender.

 

A deed-in-lieu of foreclosure is a severely negative “credit event” for the borrower, but it does not look as bad as an actual foreclosure.

Foreclosure Alternative #6: Short Sale

A short sale is a program whereby the lender accepts less than the full payoff amount due in order to avoid having to foreclose. (The reason that a bank would approve such a plan is whether, by their calculations, approving a short sale would likely result in a lower loss for them than would going through the entire foreclosure and eviction process.) Requirements for these programs vary by lender, but most lenders prefer to negotiate a reduced settlement rather than go through the extra time and expense of a foreclosure.

Short Sale process

Your best chance of successfully negotiating a Short Sale or Pre-Foreclosure Sale is to work with a team of professional who have a proven track record of successfully bringing their clients through the process of negotiating with lenders to accept a short payoff. The goal is to allow you to walk away from your situation without a foreclosure on your credit and without messy lawsuits or judgments against you. A real estate broker who is familiar and knowledgeable about the process will be able to explain it to you and guide you through the process.

This option is often the best course of action for homeowners who can no longer keep up with their loan payments.

Whether or not you qualify for any of the above-referenced alternatives will depend upon an analysis performed in accordance with your lender’s guidelines and procedures. You will likely be required to provide specific information regarding the reason for your financial hardship, recent pay stubs, bank statements, and other supporting documentation the lender requires.

Freddie Mac alternatives to foreclosure

Much of the information discussed here is contained in this packet (Freddie Mac alternatives to foreclosure packet), which is published by Freddie Mac. (Freddie Mac is a Government-sponsored enterprise, a similar entity to Fannie Mae, and it is one of the major loan servicers in the United States. Most mortgage loans in the United States are made according to Fanne Mae/ Freddie Mac guidelines.

Whichever option you choose, you must act quickly in order to avoid foreclosure. Make sure you ask questions and be as informed as possible, but start the process immediately. Make sure that the person helping you can prove how they have helped others in a situation like yours. This situation is not easy, but neither is going through a foreclosure, possible lawsuits, judgments, bankruptcy, etc.

If you are a homeowner in Massachusetts, we have a team that is ready, willing, and able to discuss possible options and help you through the process.

Our services are FREE to homeowners. (If we successfully negotiate a short sale, our fees are paid by your lender.) There is literally NO RISK for you to benefit from our advice and experience.

The only other alternative is: do nothing. This is an option, but it is the worst option available. By doing nothing, the situation only gets worse. People who try delay long enough end up losing their home to foreclosure. Not only are they evicted from their home, their credit is devastated. And, after the foreclosure, they will very likely still owe money – either to the bank or the IRS. (Most home loans are structured so that the bank can sue you for any outstanding money owed. The lender may seek a deficiency judgment, which can follow you around until you pay the debt off, file bankruptcy, or die.) I hate to have to say this, but I have seen the situation play out in real-life, and I wished those people had done something different, even if it wasn’t with me.

We are Here to Help

If you are in this situation and just need someone to discuss your situation and weigh your options, call 508-717-3648, email shane.engel@remax.net, or submit your contact information at: http://www.baystatehomefinder.com Our services are FREE, CONFIDENTIAL, and NO OBLIGATION. You have nothing to lose. Call today.

About Shane Engel

Picture of Shane Engel

Shane Engel

Broker and Chief Marketing Officer

shane.engel@remax.net

857-254-9318857-254-9318 main

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