Special Forbearance.
A forbearance is an agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments. A forbearance agreement is not a long-term solution for delinquent borrowers; it is designed for borrowers who have temporary financial problems caused by unforeseen problems such as temporary unemployment or health problems.
Borrowers with more fundamental financial problems - such as having chosen an adjustable rate mortgage on which the interest rate has reset to a level that makes the monthly payments unaffordable - must usually seek remedies other than a forbearance agreement.
You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.
Mortgage Modification.
A mortgage modification is a modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.
A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan.
You may qualify if you have recovered from a financial problem and can afford the new payment amount. Most lenders can work with home owners even if they have poor credit and have a foreclosure date. Chances to obtain a loan to regain a current status on your mortgage become diminished once you have received a notice of default (NOD). Notice of Default is usually sent after 90 days of the mortgage payment being late.
Partial Claim.
Your lender may be able to work with you to obtain a one-time payment from the FHA Insurance fund to bring your mortgage current. You may qualify if:
• your loan is at least 4 months delinquent but no more than 12 months delinquent;
• you are able to begin making full mortgage payments.
When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property.
Pre-foreclosure sale.
For owners who don’t care to save the property, or who have no other choice than to let the property go, selling the property may be a smart choice. If you have enough equity in the house to allow you to pay off the mortgage in full, then a sale is usually your best option. This option preserves your equity and what’s left of your credit score. Selling also leaves you in a much better financial position should you want to buy another home in the future.
Deed-in-lieu of foreclosure.
A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith.
A deed in lieu of foreclosure has advantages for both a borrower and a lender; mainly the avoidance of time consuming and costly foreclosure proceedings. In addition, the borrower avoids some public notoriety, and may even be able to lease the property back from the lender.
The homeowner needs to assess certain risks which include, among other things, the risk that the property is not worth more than the remaining balance on the mortgage and that junior creditors might hold liens on the property.
This won't save your house, but it is not as damaging to your credit rating as a foreclosure. You may qualify if:
• you are in default and don't qualify for any of the other options;
• your attempts at selling the house before foreclosure were unsuccessful; and
• you don't have another FHA mortgage in default.
Bankruptcy
A Chapter 13 bankruptcy filing can stall or derail foreclosure proceedings. That's because of bankruptcy's "automatic stay" provisions that force creditors to the sidelines while the bankruptcy court sorts things out. The lender can petition the court to allow it to continue with the foreclosure, depending on where you are in the foreclosure process, but it should buy you some time.
If there is no equity in the house (today's value less costs of sale less payoff balances on all liens) the trustee in a Chapter 7 may abandon the house to you. That is, you keep it, as long as you pay the mortgage.
A bankruptcy does not relieve the property of the liability for voluntary liens, like mortgages or deeds of trust, nor for tax liens. So, the lender retains the right to foreclose if you don't pay.
Important News:
Dec 2007 - BUSH SIGNS BILL TO OFFER TAX BREAK FOR MORTGAGE FORGIVENESS
President Bush signed a measure in to law Dec. 20 offering homeowners tax breaks on forgiven debt on mortgage refinances or foreclosure work-out programs dispersed from Jan. 2007 through Dec. 31. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, eligible taxpayers do not have to pay federal income tax on debt forgiven for loans secured by a qualified principal residence.
More info: http://www.govtrack.us/congress/bill.xpd?bill=h110-3648