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 Alternatives to Foreclosure

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Below is a brief description of the different options that may be available to homeowner's in need.  Homeowners can click the Get Free Help button above and be referred to the Protection Center's statewide partnership of HUD-approved housing counselors.  Housing counselors work with homeowners to apply for mortgage assistance with their servicing lender.

Work Out Process/Loss Mitigation

By calling your mortgage loan servicer as soon as you know you may have a problem making your monthly mortgage payments, you enable them and yourself more time to find a solution. Keep in mind that as long as a sale on your home is not final, a work out process can still take place, but the earlier in the process you begin discussions, the more likely it is.

It is common practice to begin the work out process by asking specifically for the servicer's loss mitigation department, if one exists. Always record by noting the time, date and person with whom you speak and ask for all agreements to be confirmed in writing.

The loss mitigation department will require certain documents to complete a work out package for you:

  • Completed application form
  • Pay stubs for income verification
  • Previous year’s W-2 forms
  • Completed budget
  • Hardship letter explaining your situation

It may take a loss mitigation specialist a few weeks or even months to report back to you with the decision about the work out plan. There are many alternatives to foreclosure listed below. You should regularly check with the loss mitigation specialist about the status so your request does not get lost. The collection department may keep contacting you trying to collect on the debt. This may continue until the work out process is final.

If the servicer is unwilling or unable to work out an agreeable solution for you, you are allowed to contact the mortgage note holder directly. Depending on your type of loan, it is sometimes difficult to figure out who this is. Under the 1995 amendment to the Truth-in-Lending Act, the servicer is required, upon written request, to provide you with the name, address and telephone number of the mortgage holder.

If you feel you need more help during the work out process, you can always contact us. A counselor can help you gather the information you need and better understand the process.

Special Forbearance

Your servicer may agree to a repayment plan to bring the loan current based on your financial situation. This can be done by either suspending or reducing the payments until you are able to recover from a financial setback. You may qualify for this if you have recently lost your source of income or had an unexpected increase in living expenses. You must furnish information to the lender to show you will be able to meet the requirements of the new payment plan. You will be responsible for repaying the delinquency over a period of time.

Loan Modification

A loan modification is a change in one or more of the loan terms. Options could include lowering the interest rate on the loan, extending the period of the loan or re-amortizing the loan where the delinquent amount is added to the principal balance and the loan is brought current. This will help you catch up by possibly reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default.

Partial Claim

You may be able to obtain an interest-free loan from the U.S. Department of Housing and Urban Development (HUD) to bring your mortgage current. You may qualify if your loan is at least four months delinquent, but no more than 12 months delinquent, and you are able to begin making full mortgage payments. If your loan is in foreclosure, the servicer could take it out of foreclosure to do a partial claim.

When you lender files a partial claim, HUD will pay your servicer the amount necessary to bring your mortgage current. You must execute a promissory note, placing a lien on your property until the note is paid in full. The note is interest-free and is due if you sell or leave your property or when your mortgage matures.

Fannie Mae now offers a partial claim product called HomeSaver® Advance. HomeSaver® Advance is an alternative for eligible homeowners who are in default on their first mortgage. It is documented by a promissory note, executed by the homeowner and payable over 15 years at a fixed rate of 5 percent with no payments or interest accrual for the first 6 months.

Pre-Foreclosure Sale

By selling your home before the foreclosure is final, you can pay off your mortgage, avoid foreclosure and prevent further damage to your credit rating. You may qualify for this option if 1) the “as is” appraised value of your home is at least 63 percent of the amount you owe and the sales price is 82 percent of the appraised value; 2) the loan is at least two months delinquent prior to the pre-foreclosure sale closing date; and 3) you are able to sell your house within three to five months, depending on what your lender agrees to. Also known as a short sale, this work out option is sometimes available when property values have declined since the mortgage was issued.

Deed-In-Lieu of Foreclosure

If it is evident that you are unable to recover from your financial difficulties while paying a mortgage, you may qualify to voluntarily “give back” the property to the lender. Even though you lose your house, this provides a better chance for you to get another mortgage in the future. You may qualify for this option if 1) you are in default and do not qualify for any other options; 2) your attempts to sell the house before foreclosure were unsuccessful; and 3) you have no other liens or mortgages on the property or any other mortgages in default. Most likely a servicer will not accept a deed-in-lieu unless all foreclosure fees are paid. By contacting your servicer or us as soon as you have a financial problem, you guarantee more possibilities being available to you.