THERE ARE ALTERNATIVES TO FORECLOSURE! If you are behind on your monthly payments, then you should consider the alternatives to foreclosure. Foreclosure results in adverse credit and other financial difficulties. It becomes more difficult to obtain credit or another mortgage if you have a foreclosure history. Foreclosure results when you are unable to pay your mortgage(s) according to the terms set by the mortgage company. Foreclosure is the legal process your mortgage company uses to take possession of your home. At the end of the legal process, you must move out of your home or be evicted. In Illinois, the house is sold at a sheriff’s auction approximately three months after the Judgement of Foreclosure is entered. If the property sells for less than the amount owed on the mortgage, the mortgage company may decide to obtain a deficiency judgment against you for the difference. If that happens, you not only lose your home, but you also owe the mortgage company the balance of the deficiency judgment. Foreclosures and deficiency judgments seriously affect your ability to qualify for credit in the future. There are several alternatives to foreclosure which have less impact on your credit. The type of mortgage loan you have and what your mortgage company will allow determine what alternatives may be available. How do you learn which alternatives are available to you? 1. Contact your mortgage company to discuss the alternatives available to you. A housing counseling agency can also help you determine which, if any, of these options may meet your needs. They may assist you in interacting with your lender. 2. Talk to a real estate attorney that deals with foreclosures. If you are uncomfortable speaking with your mortgage company or don't understand the terminology, hire someone to represent your interests. Paying a small fee now may save you thousands of dollars later and may save your credit. There are ALTERNATIVES that allow you to keep the house such as: REFINANCE. This option allows you to use the equity you have in your home to pay the delinquent amount by obtaining a new loan. Depending on the interest rate of the new loan, your monthly payments might be reduced. You can explore refinancing with your existing mortgage company as well as with any lender of your choice. The sooner you explore this alternative, the better. Once you've missed mortgage payments, your credit score will be lowered and this will limit your refinance options. REINSTATEMENT. If you can pay the total outstanding amount owed to the mortgage company, you can continue on with the mortgage with no changes to the terms. Illinois law allows a one-time opportunity to reinstate the mortgage before the foreclosure judgment is rendered.
REPAYMENT PLAN. Your mortgage company may agree to set a schedule of payments to allow you to catch up on delinquent payments. This usually involves making a full regular monthly payment plus paying a little extra each month to repay the delinquent amount over a specified period of time. PARTIAL CLAIM. This alternative may work if the reason you fell behind on your mortgage payments was temporary. If your loan is an FHA insured loan, your lender may be able to obtain a one-time payment from the FHA Insurance Fund to bring your mortgage loan current with payments. You may qualify if your loan is at least four months delinquent but no more than twelve months delinquent, and you are able to resume making full mortgage payments. FORBEARANCE PLAN. This option may provide for a temporary reduction or suspension of payments. The payment amount will be increased at a later time to repay the delinquent amount. Forbearance is available if you have a VA loan and may be available for other types of loans. PAYMENT ASSISTANCE. Some state and local governments and charitable organizations offer programs that will pay part or all of your mortgage for a limited amount of time. LOAN MODIFICATIONS. You may be able to refinance the debt and/or extend the term of your mortgage loan with your mortgage company. Your mortgage company may agree to a loan modification if you have recovered from a financial problem and can afford the new payment amount. Such modifications can be done quickly and inexpensively. Loan documents can be modified in a variety of ways, but most modifications affect the interest rate and/or the term of the loan. REAMORTIZATION. When a loan is re-amortized, the delinquency is added to the loan balance in order to bring your payments up to date. This increases your loan amount and will also increase your monthly payments. The amount of the payment increase will not be as great if the life of your loan is extended at the same time. Some VA loans and other types of loans may be able to be re-amortized. REFUNDING. If you have a VA loan and the ability to make the mortgage payments, or will have the ability to make the payments in the future, and your mortgage company has decided to continue to foreclose, you may qualify for refunding. The VA has the discretionary authority to buy a loan from the mortgage holder and take over the service. This is called “refunding.” If refunding is appropriate, the VA will notify you. CHAPTER 13 BANKRUPTCY. You may be able to keep your home if you file for Chapter 13 Bankruptcy Protection. You must be able to afford the payments. In situations where you do not want to keep the home, the following alternatives may be available to you. These options will affect your credit rating less than a foreclosure will.
SELL THE HOME. If there is sufficient equity in the property, you may be able to sell the home, payoff the mortgage(s) and walk away with money in your pocket. LOAN ASSUMPTION. Even if you do not have an assumable mortgage, some mortgage companies will allow your buyer to assume your mortgage and take over your payments. FHA loans are usually assumable. If your mortgage company approves the buyer’s credit, you will obtain a release of liability and transfer ownership of the house to the new buyer. SHORT SALE. Also known as "pre-foreclosure sale." This option gives the homeowner some time to be able to sell the property to try to avoid foreclosure. If a buyer is found, but the sale price agreed to will not pay the mortgage balance in full, some mortgage companies agree to accept less than the mortgage amount. Mortgage companies will agree to a short sale if they think they will receive more money for the property than they will after foreclosure, while avoiding the costs associated with foreclosure. Some lenders require the owners to sign a new note agreeing to pay part or all of the discrepancy between the amount they received at the time of the closing and the amount needed to pay off the mortgage. In the past, the homeowner had to pay income tax on the amount the mortgage was reduced. However, in December of 2007, Congress enacted the Mortgage Forgiveness Relief Act, which, in most cases, excludes "qualified principal-residence indebtedness" from taxation. The exclusion is retroactive to January 1, 2007. DEED-IN-LIEU OF FORCLOSURE. This alternative allows the property owner to deed the property back to the mortgage company so the mortgage company can pursue selling the property. For this to be legally binding the lender must agree. The homeowner can avoid legal fees, but receives no equity from their home. Often a mortgage company will only consider this alternative as a last resort.