One of the most unfortunate consequences of the recent real estate bubble is the dramatic increase in the foreclosure rate. A large number of foreclosures are a direct result of predatory lending practices, however an equally large number are due to the effects of a stagnant economy and the financial hardships that it has caused. For homeowners that are in a financial situation where foreclosure is looming on the horizon, there are some options available to help them avoid foreclosure and save their home.
There are three main options available for use to avoid foreclosure:
With such a large number of foreclosures occurring throughout the country, many lenders and loan service agencies are willing to work with borrowers to help them get current with their delinquent mortgage or promissory note.
One of the options available to borrowers is forbearance. This is an agreement where the lender promises to reduce or suspend payments on the mortgage for a certain period of time in exchange for making a full payment at the end of the forbearance period. This option gives borrowers a time period of up to six months to regroup their finances and get back on track.
Another option that is used to make up missed payments is a repayment plan. This option is effective once someone has reestablished their financial income and needs to get caught up on their loan or promissory note. The repayment plan takes the amount of the mortgage payments missed, divides it up over a specific period of time, and adds it to the current mortgage amount.
Thus, someone who is four months behind on their mortgage would take that amount and divide it up over the agreed-upon term of the repayment plan, and pay that in addition to their monthly mortgage payment each month.
A third option that enables homeowners to actually lower their monthly payments on their mortgage or legal promissory note is loan modification. Loan modification is used most frequently when a homeowner does not have the ability to pay their current mortgage amount now or in the foreseeable future. This can be for a variety of reasons such as a job layoff, an injury, or an event that resulted in a reduced monthly income.
A loan modification includes reduced interest rates, extension of the loan repayment period, modification from a variable rate to a fixed rate mortgage, or re-amortization of the loan where the missed payments are applied at the end of the loan term.