Common Foreclosure Prevention Workout Options

Lenders usually offer workout options based your household budget. Your servicer will make a final decision about which foreclosure prevention options are available to you, based on the rules and guidelines of the loan investor. Here are some various options that may be available to you, based on different scenarios.

If you have a positive cash flow in your budget, then you can explore the following options:

  • Reinstatement
  • Loan Modification
  • Repayment Plan
  • Partial Claim (FHA)

If you have a negative cash flow in your budget, then you should consider the following options:

  • Forbearance
  • Loan Modification
  • Special Forbearance (FHA)
  • Short Sale
  • Deed in Lieu
  • Sale of the property

If you have a balanced budget, consider learning more about:

  • Loan Modification
  • Partial Claim (FHA)
  • Special Forbearance (FHA)

Other options to consider are:

  • PMI – (Private Mortgage Insurance)
  • Sale of Property
  • Refinance
  • Reverse Mortgage

Reinstatement

To make your mortgage current, all delinquent mortgage payments and past due amounts must be paid. You may reinstate the loan at any point, even during a workout plan or foreclosure. To use this option, you will need a lump sum of cash.

Forbearance

To resolve a temporary problem, this option allows you to send in no or reduced payments for a specified period. When forbearance ends, all payments uncollected during the plan must be repaid. This can be done by reinstatement, a repayment plan or a loan modification from the new financial situation. Forbearance may provide time to increase your income in order to qualify for another long-term loss mitigation option.

Loan Modification

This is a written agreement between you and the servicer to change one or more of the original loan terms—for example, the rate, term or type of mortgage (ARM to a Fixed). The overdue amount, plus any additional fees, will be financed into the current loan balance, creating the new balance amount. Generally, a loan modification will reduce your monthly payment, but that is not always possible.

Repayment Plan

This option allows you to send their regular payment, plus an agreed-upon amount each month. Plans can range from three to 24 months, depending on the lender. The Loss Mitigation department can extend plans beyond the collections department when pursuing this option. To qualify, your budget will need to show a surplus.

Short Sale

In this case, you can sell your property, even when the proceeds will be insufficient to cover the loan. Your home must be on the market for at least four to six months. Always check with your servicer to find the requirements for a short sale.

Deed in Lieu of Foreclosure

Here, you may voluntarily give the lender a clear title in exchange for a discharge of the debt. But your property must have listed for sale for a specified period. In most cases, it is a last resort. Plus, you must first try to sell the home using the servicer’s guidelines.

Partial Claim (FHA)

Your loan can be made current by securing up to 12 months of past due principal, interest, taxes and insurance in a separate, interest-free note—payable when the original mortgage is satisfied. To qualify, you must be at least four months delinquent, but no more than 12.

Special Forbearance (FHA)

This is a written repayment agreement between a mortgagee and mortgagor. It contains a plan to reinstate an asset at least three mortgage payments due and unpaid. The forbearance agreement allows eligible borrowers to delay monthly mortgage payments for at least four months.

PMI

If PMI is part of your mortgage payment, the PMI company may be able to help you pay outstanding amounts to avoid larger losses with a foreclosure.

Sale of Property

You will be released from the mortgage debt if the home is sold at a price equal to or above the outstanding mortgage note.

Refinance

You can satisfy the current debt with a lender and bring their account up to date. Typically, you must have a strong credit history to pursue this option.

Reverse Mortgage

If you are age 62 or more and have a significant amount of equity in your home, a reverse mortgage may be an option to help you prevent foreclosure.

We Can Help!

Our counselors deal with a variety of housing concerns every day, and we can help you. We have many programs to choose from, so check out our list of housing services and pick the option that’s right for you to learn more.

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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