One option that is often overlooked for dealing with a foreclosure, is what is known as a foreclosure workout agreement. Given the current state of the real estate market and the increasing defaults, mortgage finance companies and banks are becoming more prone to offer these for those in limited financial trouble. A foreclosure workout is best for those that either have a short-term problem such as a temporary lay off, sudden illness or accident. However, even if your change is more long term, i.e. retirement, disability onset, you can still do a Foreclosure workout.
Strictly speaking, it is probably best to hire an attorney to do this, for the main reasons, one who specializes in Foreclosure defense will know more of the options available, and it indicates to your creditors that you are serious. Also, I cannot cover all the possible options available in this post.
First, who do you need to talk to. This is a deceptively complex question, however, the first line of attack will be to your loan servicer and you will want to ask for "loss mitigation". Most servicers will have authorization from the Mortgage Holder to complete a Workout within certain guidelines. However, you can go over the servicers head if they are being uncooperative. You can find out who the actual note holder is by sending a "Qualified Written Request Under RESPA" (scroll to the last page for a sample).
Possible Workouts. The first thing YOU need to do is workout a reasonable budget, you need to know what you are aiming for, no point in agreeing to something with the bank if you cannot afford it. Second, assess your needs, is your situation a short term problem that will be resolved in 3-6 months, or more long term to permanent.
Tip: It helps to document your financial issues with the loss mitigation department. If you were laid off, send them the info, if you get a new job, inform them and send them the info. etc. Also, it helps to start this process before the foreclosure process begins.
Here are some Workout Agreement Options:
1. Amortize your arrears over the next 3-6 months, plus make your regular mortgage payment. For example, if your regular monthly mortgage payment is $1,500 and you are $3,000 in arrears, the bank may offer that you pay your regular monthly payment of $1,500 PLUS $500 per month to cure the arrears. This is what the bank will initially suggest, but if you're facing foreclosure, odds are, you cannot afford to make a larger payment. But just realize, this is what the bank will push for. This option is known as a Reinstatement Agreement or Deferral Agreement.
2. Temporary Interest Rate Reduction. You can request a temporary interest rate reduction. However, this is usually only accepted if your interest rate is above the current market interest rate. The other variant is to request to pay INTEREST ONLY for a few months, however, requesting interest only payments is something you typically need to do before you go into arrears.
3. Recasting...This is a particular favorable option for borrowers, but fewer and fewer lenders are allowing it, but this is where you recast the loan. The bank cancels your missed payments and tacks them on to the end of your loan. Note, this option only works after you have missed payments. If you are able to go this route, you will also want the creditor to delete the missed payments on your credit report.
4. Permanent Modification of the Loan Agreement. This option can take several forms, i.e. a permanent reduction in interest rate to current market rates, extension of the loan payment period, Re-amortization of the arrears, this is where the existing interest rate is applied to a new principal balance that includes the missed payments (essentially increasing your principal). Reduction in Principal...this is a rare one, but is possible when the existing principal due on the loan exceeds the value of the home. Deferred Junior Mortgages, DJM's are typically used in conjunction with Reduction in Principal Agreements. Basically, the lender agrees to reduce the overall principal owed on the house, but takes a 2nd (or 3rd) mortgage on the house for the amount of the reduction, the nice thing is, you do not make payments on this DJM, but you must pay it off if and when you ever sell the home.
All the various government programs for mortgages have programs for loss mitigation, Fannie Mae, Freddi Mac, VA, etc. So, if your loan is handled or part of any of these agencies, they have fairly well established guidelines for Workouts. Finally, if Foreclosure has begun, you can request, in writing, a delay of the sale date. At the very least, if they don't grant it, and they negotiate in bad faith, you now have a legal claim against them for bad faith (among other things)
Anyhow, those are some of the options available to you. Also, if you get stuck, HUD wants to know about lenders who have been unwilling to consider a workout and can often push the workout process forward.
Strictly speaking, it is probably best to hire an attorney to do this, for the main reasons, one who specializes in Foreclosure defense will know more of the options available, and it indicates to your creditors that you are serious. Also, I cannot cover all the possible options available in this post.
First, who do you need to talk to. This is a deceptively complex question, however, the first line of attack will be to your loan servicer and you will want to ask for "loss mitigation". Most servicers will have authorization from the Mortgage Holder to complete a Workout within certain guidelines. However, you can go over the servicers head if they are being uncooperative. You can find out who the actual note holder is by sending a "Qualified Written Request Under RESPA" (scroll to the last page for a sample).
Possible Workouts. The first thing YOU need to do is workout a reasonable budget, you need to know what you are aiming for, no point in agreeing to something with the bank if you cannot afford it. Second, assess your needs, is your situation a short term problem that will be resolved in 3-6 months, or more long term to permanent.
Tip: It helps to document your financial issues with the loss mitigation department. If you were laid off, send them the info, if you get a new job, inform them and send them the info. etc. Also, it helps to start this process before the foreclosure process begins.
Here are some Workout Agreement Options:
1. Amortize your arrears over the next 3-6 months, plus make your regular mortgage payment. For example, if your regular monthly mortgage payment is $1,500 and you are $3,000 in arrears, the bank may offer that you pay your regular monthly payment of $1,500 PLUS $500 per month to cure the arrears. This is what the bank will initially suggest, but if you're facing foreclosure, odds are, you cannot afford to make a larger payment. But just realize, this is what the bank will push for. This option is known as a Reinstatement Agreement or Deferral Agreement.
2. Temporary Interest Rate Reduction. You can request a temporary interest rate reduction. However, this is usually only accepted if your interest rate is above the current market interest rate. The other variant is to request to pay INTEREST ONLY for a few months, however, requesting interest only payments is something you typically need to do before you go into arrears.
3. Recasting...This is a particular favorable option for borrowers, but fewer and fewer lenders are allowing it, but this is where you recast the loan. The bank cancels your missed payments and tacks them on to the end of your loan. Note, this option only works after you have missed payments. If you are able to go this route, you will also want the creditor to delete the missed payments on your credit report.
4. Permanent Modification of the Loan Agreement. This option can take several forms, i.e. a permanent reduction in interest rate to current market rates, extension of the loan payment period, Re-amortization of the arrears, this is where the existing interest rate is applied to a new principal balance that includes the missed payments (essentially increasing your principal). Reduction in Principal...this is a rare one, but is possible when the existing principal due on the loan exceeds the value of the home. Deferred Junior Mortgages, DJM's are typically used in conjunction with Reduction in Principal Agreements. Basically, the lender agrees to reduce the overall principal owed on the house, but takes a 2nd (or 3rd) mortgage on the house for the amount of the reduction, the nice thing is, you do not make payments on this DJM, but you must pay it off if and when you ever sell the home.
All the various government programs for mortgages have programs for loss mitigation, Fannie Mae, Freddi Mac, VA, etc. So, if your loan is handled or part of any of these agencies, they have fairly well established guidelines for Workouts. Finally, if Foreclosure has begun, you can request, in writing, a delay of the sale date. At the very least, if they don't grant it, and they negotiate in bad faith, you now have a legal claim against them for bad faith (among other things)
Anyhow, those are some of the options available to you. Also, if you get stuck, HUD wants to know about lenders who have been unwilling to consider a workout and can often push the workout process forward.
..sigh, what a mess.
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