How to Deal with Foreclosure
Work it out., Determine if you’re HAMP eligible., See what your alternatives are under HAFA., Ask for a short sale.
Step-by-Step Guide
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Step 1: Work it out.
A “workout” is lending industry jargon for reaching an agreement between a lender and a borrower to modify a loan in the interest of avoiding default.
When you come to a workout agreement with your lender, you approach the lender directly and come to a two party agreement on the necessary loan modifications.
In order to increase your chances of coming to a successful agreement, you should:
Talk to your lender right away.
The farther you fall behind, the more likely it is your lender will refuse an attempt to come to an accord.
The reason is more mathematical than it is mean-spirited: the farther behind you fall, the less likely it is you’ll be able to catch up.
Explain what the situation is, whether it’s likely to be temporary, the reason for your failure to make payments, and what you’re doing to change it.
For example, if you lost your job, that’s an understandable situation.
It’s also likely to be temporary.
If you can show that you’re making every effort to find employment (or that you’ve secured temporary employment), it helps your chances of reaching an agreement with the lender.
Come to the lender with specific proposals for modification.
For example, if you have a fifteen year mortgage, you might suggest moving to a thirty year mortgage.
If your interest rate has recently ballooned, you might ask that they switch back to an older rate. -
Step 2: Determine if you’re HAMP eligible.
The Home Affordable Modification Program is a Federal program designed to lower the monthly payments of eligible borrowers.
Although more than a million homeowners have modified their loans under HAMP, not everyone is eligible.
The full terms and conditions can be viewed at, http://www.hsh.com/finance/government/home-affordable-modification-program.html but the basic terms of eligibility are:
Your mortgage must predate January 1st
2009.
You can’t owe more than $729,750.
The property has to be your primary residence.
Your total expenses for housing ( mortgage payments, insurance, taxes, HOA dues) must be greater than 31% of your gross income.
You have to be under financial hardship.
If you meet the conditions, go to http://www.hsh.com/finance/government/home-affordable-modification-program.html to begin the application process. , The Home Affordable Foreclosure Alternatives (HAFA) program is another Federal program designed to help borrowers who are in immediate danger of foreclosure.
Although the terms are not as attractive as those under HAMP, they can be a better option than going it alone.
The terms of eligibility are basically the same as those under HAMP.Under HAFA, the lender agrees to a short sale of the property (selling it for less than the value of the mortgage), or in the alternative, a deed-in-lieu-of-foreclosure.
To be clear, any borrower behind on their mortgage can directly ask their lender for a short sale or to turn over their deed-in-lieu-of-foreclosure.
But under HAFA, the borrower gets $10,000 in relocation assistance, and a waiver of any deficiency payment—the difference between the short sale price and the remainder of the mortgage.
Not all lenders participate in HAFA.
To see if your does and begin the application process, visit https://www.makinghomeaffordable.gov/steps/Pages/step-2-program-hafa.aspx. , If your lender doesn’t participate in HAFA or you aren’t eligible, you can still ask your lender to allow you to short sell your house.
They don’t have to agree, but they sometimes will.
In order to strengthen your case, explain the following:
What your hardship is.
If you can’t show your lender why you can’t make your payments, they’re far less likely to agree to a short sale.
The difference in the appraised value of the home and the mortgage debt.
Although it isn’t mandatory, an appraisal from a licensed appraiser is the most credible way to demonstrate the current value of the home.
Verification of your income.
The bank will want more than just your word of a hardship.
They’ll want documentation to back it up, too.
Gather documents like pay stubs, W-2s, property tax bills, and a statement of your assets and liabilities.
For a more detailed description of the short sale process, check out Apply for a Short Sale. -
Step 3: See what your alternatives are under HAFA.
-
Step 4: Ask for a short sale.
Detailed Guide
A “workout” is lending industry jargon for reaching an agreement between a lender and a borrower to modify a loan in the interest of avoiding default.
When you come to a workout agreement with your lender, you approach the lender directly and come to a two party agreement on the necessary loan modifications.
In order to increase your chances of coming to a successful agreement, you should:
Talk to your lender right away.
The farther you fall behind, the more likely it is your lender will refuse an attempt to come to an accord.
The reason is more mathematical than it is mean-spirited: the farther behind you fall, the less likely it is you’ll be able to catch up.
Explain what the situation is, whether it’s likely to be temporary, the reason for your failure to make payments, and what you’re doing to change it.
For example, if you lost your job, that’s an understandable situation.
It’s also likely to be temporary.
If you can show that you’re making every effort to find employment (or that you’ve secured temporary employment), it helps your chances of reaching an agreement with the lender.
Come to the lender with specific proposals for modification.
For example, if you have a fifteen year mortgage, you might suggest moving to a thirty year mortgage.
If your interest rate has recently ballooned, you might ask that they switch back to an older rate.
The Home Affordable Modification Program is a Federal program designed to lower the monthly payments of eligible borrowers.
Although more than a million homeowners have modified their loans under HAMP, not everyone is eligible.
The full terms and conditions can be viewed at, http://www.hsh.com/finance/government/home-affordable-modification-program.html but the basic terms of eligibility are:
Your mortgage must predate January 1st
2009.
You can’t owe more than $729,750.
The property has to be your primary residence.
Your total expenses for housing ( mortgage payments, insurance, taxes, HOA dues) must be greater than 31% of your gross income.
You have to be under financial hardship.
If you meet the conditions, go to http://www.hsh.com/finance/government/home-affordable-modification-program.html to begin the application process. , The Home Affordable Foreclosure Alternatives (HAFA) program is another Federal program designed to help borrowers who are in immediate danger of foreclosure.
Although the terms are not as attractive as those under HAMP, they can be a better option than going it alone.
The terms of eligibility are basically the same as those under HAMP.Under HAFA, the lender agrees to a short sale of the property (selling it for less than the value of the mortgage), or in the alternative, a deed-in-lieu-of-foreclosure.
To be clear, any borrower behind on their mortgage can directly ask their lender for a short sale or to turn over their deed-in-lieu-of-foreclosure.
But under HAFA, the borrower gets $10,000 in relocation assistance, and a waiver of any deficiency payment—the difference between the short sale price and the remainder of the mortgage.
Not all lenders participate in HAFA.
To see if your does and begin the application process, visit https://www.makinghomeaffordable.gov/steps/Pages/step-2-program-hafa.aspx. , If your lender doesn’t participate in HAFA or you aren’t eligible, you can still ask your lender to allow you to short sell your house.
They don’t have to agree, but they sometimes will.
In order to strengthen your case, explain the following:
What your hardship is.
If you can’t show your lender why you can’t make your payments, they’re far less likely to agree to a short sale.
The difference in the appraised value of the home and the mortgage debt.
Although it isn’t mandatory, an appraisal from a licensed appraiser is the most credible way to demonstrate the current value of the home.
Verification of your income.
The bank will want more than just your word of a hardship.
They’ll want documentation to back it up, too.
Gather documents like pay stubs, W-2s, property tax bills, and a statement of your assets and liabilities.
For a more detailed description of the short sale process, check out Apply for a Short Sale.
About the Author
Raymond Gibson
Committed to making pet care accessible and understandable for everyone.
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