When facing a temporary change in circumstances, your lender may allow you to reduce or suspend payments for a short period of time and then agree to another option to bring your loan current. A forbearance agreement is often combined with a reinstatement when you know you will have enough money to bring the account current at a specific time. The most common forbearance arrangement involves a repayment plan in which you agree to resume your regular monthly payments plus a portion of the past due amount until you are caught up.
Your mortgage lender may agree to modify the terms of your mortgage loan. Your loan could be permanently changed by adding missed payments to the existing balance, changing the interest rate, making an adjustable mortgage a fixed-rate mortgage or extending the number of years you have to repay your loan. The willingness and ability to modify your mortgage varies by lender and requires a hardship package with income and asset documentation.
If your credit has not yet been damaged, you may qualify for a “short” refinance. This is a relatively new option that involves the refinance of your home with a reduction in the principal balance. You will have to qualify for this process by showing both a legitimate hardship and the ability to pay the new mortgage through a fully documented qualification process. Lender agreement to accept the “short” payoff is voluntary. Determine if you are eligible for a short-refinance.
If you want to keep your home and need help restructuring your budget to regain control of your finances, contact a HUD Approved Housing Counseling Agency for default resolution counseling.
A bankruptcy may allow you to reorganize your debt and keep your home. California bankruptcy laws require that you pass a “means test” before you are allowed to file a Chapter 7 bankruptcy. Many people won’t pass this test without their mortgage payment so it is important to discuss this option with a bankruptcy attorney before listing your home for sale or allowing it to go to foreclosure.
Servicemembers Civil Relief Act (SCRA)
The SCRA is a bill that was signed into law on December 19, 2003. Servicemembers who have had their periods of active duty extended often suffer a tremendous amount of financial pressure. This law provides certain protections to military personnel that are in foreclosure in specific situations and also provides other protections. For more information, visit http://www.military.com/benefits/legal-matters/scra/overview
Sell your home
If you have equity in your home (money left over after all loans and encumbrances have been paid), you may sell your home without lender approval and may even receive cash from the sale. If you owe more than the property is currently worth, your lender may agree to a Short-Saleand accept less than the amount owed.
Deed in Lieu of Foreclosure
A Deed in Lieu of Foreclosure is when you give the property back to the bank rather than wait for the foreclosure process to be completed. This solution is typically an option when there is only one mortgage and no additional liens on the property. Some lenders will consider this immediately, some lenders will consider this option only if the home has been For Sale for at least 90 days and some lenders will not consider this option at all.
It is important to know that any portion of the mortgage that is unpaid either through Lender agreement, Short Sale or foreclosure, it is potentially taxable as income unless you qualify under the Mortgage Forgiveness Debt Relief Act. Please consult with your Tax Advisor.