The Pressure to Compromise is on Both Sides. Negotiate!
By John P. Allen, DirectVALoan.com
The best way to avoid and stop foreclosure is to prevent the filing of a Notice of Default.
A Notice of default is a notice to a borrower with property as security under a mortgage or deed of trust that he/she is delinquent in payments. If the delinquency (money owed and late), plus costs of preparing the legal papers for the default, is not paid within a certain time, foreclosure proceedings may be commenced. Other people with funds secured by the same property are usually entitled to receive copies of the notice of default.
Lenders, especially VA Home Mortgage Lenders, do not want to foreclose but will file a Notice of Default to protect their interests. If you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender!
Don’t put it off! Don’t be embarrassed or ignore letters from your lender because those responses will make the situation worse! Be pro-active! Remember that everything in the world can be negotiated when the pressure to compromise is on both sides and believe me, lenders really don’t’ want to foreclose on a house, especially one that is declining in value, as we have in this current receding market. So yeah, the pressure to compromise is really on both sides. In fact, you’re not in this by yourself okay! The lender is actually your partner in this deal!
Now, depending on your particular situation and hardship circumstances, here are some options your lender might be willing to do to work with you:
- Time to Make Up Payments.
Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you. This is called forbearance.
- Forgive a Payment.
If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens.
- Spread Out the Missed Payments Over a Longer Term.
For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan.
- Change the Terms of Your Loan.
If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period. This is called a note modification.
- Add the Back Payments to Your Loan Balance.
If you have sufficient equity and meet the lender’s lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan. This is called a refinance.
- Make a Separate Loan to You.
Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim.
3 Ways to Stop Foreclosure
When the lender files a Notice of Default, your options are limited. That is why it is better for you to call your lender before falling behind on your payments, because lenders are often reluctant to work out repayment schedules after foreclosure proceedings have been commenced.
You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:
- Sell Your Home.
Interview real estate agents to get an opinion of market value and average “Days on Market”to sell your home. You might be tempted to hire a discount broker, but many sellers feel they need the exposure and marketing that full-service brokers offer. Compare both to determine which best meets your needs and time frame.
- Consider a Short Sale.
If your home is worth less than the amount you owe, you might be a candidate for a short sale. A short sale happens when the lender is shorted on a mortgage, meaning the lender accepts less than the total amount that is due. A short sale affects credit but it’s not as bad as a foreclosure. You or your agent will need to negotiate with your lender to find out if the lender will cooperate on a short sale. This is called a pre-foreclosure redeemed.
- Sign a Deed-in-Lieu of Foreclosure
This is called deeding the home back to the lender. The homeowner give the lender a properly prepared and notarized deed, and the lender forgives the mortgage, effectively canceling the foreclosure action. Lenders tell me that deeds-in-lieu of foreclosure affect credit the same as a foreclosure.
The lender might also work an arrangement where a home owner can remain in the home until finding a place to move into. Owners in default should negotiate the right to retain occupancy, arguing that if the lender followed through on the foreclosure, an owner would still enjoy the right of possession during that procedure.