Recently I have met several home-owners who through no fault of their own find themselves in a predicament regarding their homes. Either through a job loss, death of a spouse, an adjustable rate mortgage coming due or medical problems they can no longer afford their mortgage payment. These folks who have always been perfectly on time with their mortgage payments now are 2 or 3 months behind and the bank is calling seemingly hourly to collect the debt.
In case you didn't know it, Georgia is a "non-judicial" state. That means that a lender is permitted to foreclose on a property without filing a lawsuit, as long as a power of sale clause is included in the security agreement, and as long as the sale is properly advertised in the local newspaper. Lenders actually prefer this method since it involves less time and less expense than the filing of a law suit. It takes much less time in Georgia for lenders to take your house back than most other states. Truly. You only have to be 20 minutes late and your bank can legally start the foreclosure process.
If you know someone who is behind in mortgage payments by 30, 60, 90 days, it is time to consider next steps to avoid foreclosure and hopefully save credit. Here are the alternatives for avoiding a foreclosure. And, I can't stress that time is of the essence here when determining a game plan.
Options Include:
1. Forbearance
2. Loan Modification
3. Deed in Lieu of Foreclosure
4. Short Sale
Forbearance
Under a forbearance agreement, your lender may allow you to reduce or suspend payments for a short period of time. At the end of the forbearance period, you will begin making regular payments plus an additional amount of the past due payments each month until you are caught up.
Pro: You remain in your home. A temporary reduced or suspended payment provides time needed to save money, pay off other bills, find employment or additional employment, or recover from injury or illness.
Con: At the end of the forbearance period, your payment will be higher due to the past due amounts owed. Your mortgage payments could be 20% - 25% higher for a period of 1-year or more.
Loan Modification
If you can make payments on your loan, but don’t have enough money to bring your account current, your lender may be able to change the terms of your original loan to absorb your delinquent payments and make the payments more affordable. Your loan could be permanently changed by adding the missed payments to the back end of the existing loan balance, lowering the interest rate or making an adjustable rate fixed, or extending the number of years you have to repay your loan.
Pro: You remain in your home.
Con: Because of additional debt such as credit cards, car payments, medical bills, and student loans, most people do not qualify for a loan modification. If you purchased your home with little or no money down or your home has depreciated in value at a rate at or near the national average, you may not qualify. Currently, most people owe more on their home than their home is worth in today’s market. If the bank runs an appraisal of the property and determines that the difference is too significant, they will not approve a Loan Modification. That makes this option difficult for home-owners to achieve.
Deed-in-lieu of Foreclosure
If you are unable to bring your loan current or sell your home in a reasonable amount of time, your lender may agree to have you voluntarily transfer the deed to the property to them to help avoid the impact of a foreclosure on your credit rating.
Pro: By voluntarily transferring the deed, you save your lender tens-of-thousands of dollars in foreclosure proceedings. If you are willing to do this, Fannie Mae has reduced the mandatory waiting period to establish credit history to a minimum of 4 years. This mandatory waiting period after a deed-in-lieu of foreclosure, is lower than the required 5-7 years or more following a foreclosure.
Con: Although a deed-in-lieu of foreclosure may have less impact than an actual foreclosure on your ability to establish home ownership in the future, if you are going to cooperate with your lender and take a proactive approach, a short sale is generally the better option.
Short Sale
If you cannot bring your loan current, afford to make payments moving forward or are unable to sell the property for the full amount of the loan, your lender may accept less than the amount owed as full payment.
Pro: Under the terms of a short sale, your lender may forgive your mortgage debt in its entirety according to the terms outlined in The Mortgage Debt Relief Act of 2007. Fannie Mae has announced a reduced mandatory waiting period to establish credit history to 2 years after the completion of a short sale. This mandatory waiting period after a short sale is lower than the required 5-7 years or more following a foreclosure.
Con: You must sell your home.
If you are considering any of these options, find an agent that specializes in this area of expertise to help guide you through this process. If you don't have a family member who can bring you current and assist you with making regular mortgage payments and help to keep you current until you are back on your feet, your best option is probably the short sale. Please be aware that there are many scams. Run away from anyone who charges a fee for their services in handling a short sale.
Sara Hibbard is a licensed Realtor in the state of Georgia and specializes in working with short sales. Sara's goal is ALWAYS to STOP your foreclosure, to ELIMINATE your mortgage debt entirely and to SAVE your credit. That is ALWAYS my goal as I work with home owners affected by the short sale process. Please call Sara Hibbard with all your real estate questions and concerns. Sara is easily reached at 77-399-8108.
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