Mortgage

Refinance

There are several options when it comes to renegotiating your mortgage terms.  For those who qualify a Rate/Term Refinance is usually the first choice.  Refinancing means paying off an existing loan with the proceeds from a new loan.  This is usually done in order to reduce the interest rate, or switch from an adjustable-rate to a fixed-rate note.  In order to decide whether this is worthwhile, the savings in interest must be weighed against the fees associated with the transaction.  Although Fannie Mae, Freddie Mac, FHA and VA all offer some variation of a streamline refinance, decreasing property values and the credit crunch has caused most lenders to tighten guidelines making it more difficult to qualify for a refinance.  Today, to qualify for the best rates a refinance typically requires good to excellent credit and loan-to-value ratios equal to or less than the original loan terms.  In addition, any property owner with a second lien may experience additional hurdles that must be overcome in order to refinance your first lien.   

Forbearance Agreement

For borrowers who can not refinance and are unable to make their mortgage payments due to a financial crisis, a Forbearance Agreement may be the answer.  A forbearance agreement 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.

Loan Modification

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 or a decrease in property value - must usually seek remedies other than a forbearance agreement.  For those individuals a Loan Modification may be the answer.  A Loan Modification is a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.  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.

Short Sale

When options are exhausted and it’s obvious an individual can not meet the financial requirements required to remain in the home, the sale of the property should be considered.  If your current mortgage balance exceeds the current value of the home, a Short Sale is an option.  A short sale is the sale of a property by a financially distressed borrower for less than the outstanding mortgage balance due.  The lender then accepts the less-than-full repayment of the mortgage (and the borrower is released from the mortgage obligation) in order to avoid what would amount to larger losses for the lender if it were to foreclose on the mortgage.  A short sale should be negotiated by an experienced real estate professional.

Deed in Lieu of Foreclosure

When all other options have failed and the loss of your home is imminent, a Deed in Lieu of Foreclosure may be a way to stave off the embarrassment of a foreclosure. A deed in lieu of foreclosure is a potential option taken by a borrower under which the borrower deeds the home back to 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 lender 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.  

Bankruptcy

The final option for avoiding foreclosure is Bankruptcy.  A bankruptcy is a legal proceeding involving a person or business that is unable to repay outstanding debts. Bankruptcy offers an individual a chance to start fresh by forgiving debts that simply can't be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available.  This may ultimately result in the loss of your home.  We strongly recommend you seek the advice of a qualified bankruptcy attorney before considering this option.