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Real Estate & Finance News That Affects Your Home                                        January 2008 - Page 3

GETTING HELP

Contact Lender At The First Sign of Trouble 

The key is to contact your lender and explain your situation early – before the lender initiates foreclosure – to minimize damage to your credit and avoid incurring late fees and legal charges on top of your unpaid debt. Here are some of the "forbearance programs" lenders have offered to borrowers with financial difficulties:

• A repayment plan.
A variety of plans are possible. To allow some breathing space for a short-term cash-flow problem (medical emergency, expensive care repair), the lender may add a portion of the missed payment to the next two or three months, then put you on a repayment plan. If you fall behind on several payments, the lender may require you to pay a third to half of the outstanding amount up-front in cash, tacking the rest of the delinquent amount onto subsequent payments for a year or more, for example.

• Loan modification.
This option is most often used with borrowers who can’t afford a repayment plan because of a more serious problem (reduction in income, too much total debt). The loan may be adjusted (for example, lengthening the loan term, lowering interest rate) to make monthly payments affordable.

• Refinance.
Your lender may agree to refinance your loan with a longer repayment schedule and/or lower interest rate, adding the delinquent debt to the new loan amount. In a "short refinance," the lender may agree to forgive some of the debt and refinance the loan with terms you can afford.

• Pre-foreclosure sale.
If it becomes clear you can’t afford to keep the home, the lender might suspend foreclosure proceedings, allowing time to sell the home and repay your debt for the sale proceeds. If the lender agrees to a "short sale," you might be allowed to sell your home in the pre-foreclosure phase even though it is worth less than your outstanding debt. The lender may take the proceeds and forgive the remaining unpaid amount (less expensive for the lender than going through with foreclosure).

• Deed in lieu of foreclosure.
If there is no way you can save your home, you can avoid having the foreclosure on your credit history by surrendering the property deed to the lender, who would then sell the property.