Loan Modification

A loan modification is a permanent change in one or more of the terms of your loan creating a brand new contract between you and your lender. You or your loss mitigation company works with the lender to create a new contract that will reinstate your loan and give you a fresh start by restoring your credit status. The new terms will be shaped by your ability to pay and can include adding the delinquent balance to the loan, reduce the interest rate, extending the years due, and sometimes reducing the balance owed.

Short Sale

A short sale is a negotiated sale of your home at a price below what you owe on the mortgage. If you face an uncontrollable hardship that makes it impossible to afford your home and because of a market fluctuation you owe more then your home is worth, then working with your lender to negotiate for a short sale could be your best option. By approving a short sale, the lender can avoid a lengthy and costly foreclosure, and you can pay off the loan for less than you owe. This option is beneficial for you as it significantly lessens the impact to your credit versus foreclosure and can often be removed completely.

Forbearance

In a forbearance agreement with your lender, you generally get some sort of temporary relief on your mortgage. It is essentially an acknowledgment that you have a situation that has temporarily weakened your ability to pay what you owe every month, but will turn around as soon as the hardship you are experiencing is over. This could be something like a period of unemployment or a medical issue that gets resolved.

Deed-in-Lieu of Foreclosure

This program could be considered just short of foreclosure, but still a better resolution. The result are similar in that the bank takes over your home, but by avoiding the foreclosure process, none of the proceedings become public and you are free of any personal indebtedness meaning the lender won’t be able to sue you.

Cash For Keys

In some cases, lenders are willing to pay a certain amount of money for you to walk away from your foreclosed home without doing any damage to it. Many homeowners become disgruntled and do extensive damage costing thousands of dollars to repair. This is why lenders are willing to pay you for a peaceful exit. It may be a hollow gesture, but it’s still something for you to take away during the painful foreclosure process.

There are many real estate agents, lawyers and loss mitigation experts who extend help with foreclosure prevention to homeowners and help the borrower qualify for a loss mitigation program.

One example is a short sale. The are many benefits to doing a short sale as foreclosure has proven to be far more harmful to your long-term outlook financially and even in other areas such as employment.

Refinancing your mortgage is another of those ways to prevent foreclosure. Many people who are in danger of foreclosure might not be ideal candidates for a refinance, but it’s absolutely something to look into as an alternative.

The other option – and most popular – is a loan modification which allows the homeowner to have the terms of the mortgage changed in order to accommodate a shift in their financial situation. The payments can be arranged to make the home loan more affordable.

Other foreclosure prevention options exist as well, but these are probably the best choices to start with. If none of the above works, you can start to look at the possibility of bankruptcy or a deed-in-lieu of foreclosure.

The point is mainly to say that as a homeowner, you should not sit back and allow your home to be taken away because you are afraid or unsure about what to do. Experts in foreclosure prevention are out there and can help, but you have to take the initiative to get going.

Qualifying for one of these programs comes down to your specific situation and what solution makes the most sense.

Possible Foreclosure Programs

• Loan Modification. The first thing anyone ever looks to when trying to avoid foreclosure is loan modification. The ideas is to modify your loan to something more affordable and get back to making on-time mortgage payments.
• Short Sale. Not everyone can get a modification. Short sales are usually the next best thing. It involves you selling your home, but for less than what is owed on the loan. The bank has to sign off on it.
• Forbearance. For people with temporary problems, forbearance offers a solution that gives you temporary relief while your situation that got you in trouble is being resolved.
• Deed-in-lieu of Foreclosure. While the bank does take back your house from you, you are absolved of the money you owed and avoid a public foreclosure process that can be embarrassing to some.
• Cash For Keys. This program actually does not avoid foreclosure, but rather is an cash incentive for you to walk away peacefully once the foreclosure process is complete.

There are other programs not mentioned here. Typically, most people start with loan modification and most that avoid foreclosure will probably do that or a short sale.

Qualifying for one of these programs comes down to your individual situation so consult with a loss mitigation specialist to find out what is best for you.

And you can.

Numerous loss mitigation programs exist with the intent of helping troubled homeowners avoid losing their home.

Foreclosure Prevention and Avoidance Programs

Each alternative to foreclosure has its strengths and weaknesses. Your situation will determine what program is best for you.

• Loan modification. This is usually the first idea anyone has when it comes to avoiding foreclosure. Get your loan modified, pay less every month and you’re home free, right? That might be the case and hopefully it is, but it’s not for everyone.
  

  Find another exit. There are plenty of alternatives to foreclosure.

• Short Sale. Keeping the home isn’t always in the cards. And maybe you don’t even want to keep it. A short sale is a far better alternative to foreclosure and let’s you sell home for less than what you owe.
• Forbearance. This is more of a solution geared toward those that need a temporary resolution to get them back on track.
• Deed-in-lieu of Foreclosure. The bank ends up with your home, but you are free of all the personal indebtedness and avoid the very public nature of a foreclosure.

There are other programs as well including the option of simply walking away and letting the process play out.

Talk to someone knowledgeable about loss mitigation and the foreclosure process and find out what options exist. A good professional will be able to talk you through all your options and make a suggestion that fits your personal situation.

Loan workouts take more than just asking nicely. You have to craft a picture that includes finances and hardships. It has to presented to the lender in such a way that convinces them to work something out.

With that said, there are some principle things to consider on your way to working out a solution.

It’s about the money

The first thing you have to realize is that it’s all about the bottom line. A lender is willing to work with you on a solution if it makes sense to their own bottom line. It sounds harsh, but it’s the truth. The good news for borrowers in trouble is that foreclosure is expensive to the lender and more times than not, they consider it an unfavorable outcome. That leaves a litany of other workouts that a lender is willing to negotiate. Short sale, short refinance, loan modification, deed-in-lieu of foreclosure and forbearance are all common loss mitigation programs that have their own pros and cons.

It’s about your ability to pay

Your finances are going to be front and center in any potential loan workout. The lender wants to know where every penny is coming from and where it’s going to end up. If they are to offer a workout for your situation, they want to be sure it’s a worthy investment. There are some things you may want to cut out from your monthly bills:

• Excessive vehicle payments (less car is a good idea)
• Cell phones
• Cable TV
• Restaurants
• Inessential purchases

Stick to the necessities. Lenders want to see you making a serious effort to find room to make your monthly mortgage payment.

It’s about where you live

In places where it’s harder to sell homes on the market (California, Florida, Nevada), chances are better of a loan workout agreement being reached. Why? Because if a lender ends up with the deed to the home, they have to sell it to recover their investment. If the home can’t sell, they’re stuck. That’s guaranteed incentive to get a solution worked out. Lenders are acutely aware of market activity and will know what is and isn’t working in certain regions.

It’s about your commitment

No doubt, a situation where you can’t pay your mortgage flat-out stinks. If you can face the fact you need help and are going to have to make some sacrifices, you can probably working something out. If you’re in denial and unwilling to realize that times have changed, you could be in big trouble. Be willing to humble yourself a little bit. A strong commitment to getting things fixed will go a long ways toward getting you back on track.