Before you fall behind in your mortgage payments, call your lender or the company servicing your loan as soon as possible and explain your circumstances. Don’t procrastinate!! Lenders are much more willing to work with borrowers who contact them than those who do not.
Since foreclosures involve time and expense for the lender, many lenders have options available to “work out” resolutions with borrowers. Although you have no legal right to insist that the lender modify a mortgage loan agreement to fit your changed financial circumstances, remember that mortgage servicers would much rather modify your loan than go through the effort and expense of foreclosure.
What is a “Work Out” Resolution?
Generally, a “work out” resolution involves resuming payments and arranging to pay the past-due amount over a short period of time. Sometimes, lenders will allow a “loan modification” which might lower your interest rate or extend the final due date of your loan-making your monthly payments lower.
Forbearance Agreement-This is a written repayment plan based on your current financial condition. Under this plan, your lender may create a repayment plan based on your financial condition. In some cases, lenders will suspend payments for a month or two.
Loan Modification-The lender may extend the timing on the mortgage loan over a new 30-year period and/or lower the interest rate. This would reduce your monthly payments.
Partial Claim-If you have a Federal Housing Administration (FHA) loan, the U.S. Department of Housing and Urban Development (HUD) might lend you the money on a new note to catch up on what you owe through an interest free loan. You will pay off this note when you sell the property or pay off your first mortgage.
Pre-Foreclosure “Short” Sale-You may be permitted to sell the property for less than the mortgage balance. This sale will damage your credit less than an actual foreclosure.
Deed-In-Lieu of Foreclosure-As a last resort, it could be best for you to voluntarily give the house back to the lender. This is better for your credit than an actual foreclosure. You should clearly establish in writing with the lender if the surrender will end all of the lender’s claims.
Contact a HUD-approved housing counselor. The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance.
For practical, “real world” tips in real estate investing, visit my website at http://www.mnack.com
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