Foreclosure Solutions ~ Help is Available
Foreclosure Solutions (alternatives to foreclosure)
1. Forebearance: Your lender will allow you to delay making payments for a period of time, but will add these payments back to your loan. They may be added to the end of your loan, or with a separate payment plan.
2. Re-amortization: Your lender may add missed payments to your balance, and recalculate a monthly payment taking into account the missed amounts. For example, if you owe $200,000 on your mortgage, and you have missed $4000 in payments, they may recalculate a new monthly payment based on $204,000 mortgage. This will increase your payments somewhat. This is also known as a Loan Modification of the loan terms.
3. Refinance: Your lender may agree to change the terms of your loan in order to reduce your monthly payment. This is also known as a Loan Modification of the loan terms or it could be a totally new mortgage (standard refinance).
4. Deed-in-Lieu of Foreclosure: You give your lender will take title to the house and may agree to waive a deficiency judgment against you. This is still recorded as a foreclosure on your credit, however it is less impactful with documentation.
5. Foreclosure: Proceeding in which the mortgage holder sells or repossesses your property. The lender may then seek a deficiency judgment against you for the unpaid balance, depending on the terms and type of loan you have.
In summary, a Short Sale is the best choice when it comes to ability to secure future financing and when you can no longer truly afford to keep your home, its truly an alternative to foreclosure.
“How Will a Short Sale Affect My Credit?”
Your credit affects your ability to procure financing and obtain favorable rates. A Short Sale will often be reported to the credit reporting bureaus by the lender. Fannie Mae, the nation’s largest backer of mortgages, affecting millions of loans, has announced recent favorable changes regarding its view of Short Sales and how they affect the credit-worthiness of borrowers. The Fannie Mae policy indicates that Short Sales are preferable to Deed-in-Lieu of Foreclosures and straight foreclosures. Following are excerpts from the new policy guide, published June 25, 2008:
Establishing a new policy for preforeclosure (Short Sales) . A preforeclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satisfy the delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer. Due to the increased incidence of preforeclosure sales, Fannie Mae is establishing a 2-year elapsed time period for reestablishing credit following completion of the action.
Time Period After Preforeclosure Sale: 2-year time period from completion date. Additional Requirements: None
Deed-in-Lieu of Foreclosure: 4-year time period from completion date (date deed-in-lieu executed) Additional requirements that apply after 4 years up to 7 years following completion date: Borrower may purchase a property secured by a principal residence, second home, or investment property with the greater of 10 percent minimum down payment or the minimum down payment required for the transaction. Limited-cash-out and cash-out refinance transactions secured by a principal residence, second home, or investment property are permitted pursuant to the eligibility requirements in effect at that time. ** Note- 2 year time frame only applies with “extenuating circumstances”
How does Foreclosure affect credit? Kenneth R. Harney, of the Washington Post, recently wrote “Walking Out of a Mortgage And Into Years of Hurt”, about ramifications of foreclosure. Some the highlights:
1. Fannie Mae, the major federally chartered mortgage backer, will not allow borrowers with a foreclosure to get another Fannie Mae-backed mortgage for 3-5 years, and only with a minimum credit score of 680.
2. Freddie Mac, federally chartered to support the secondary mortgage market, sees foreclosure as a major negative on credit for seven years.
3. FICO scores count foreclosures as nearly as bad as bankrupty.
4. Freddie Mac and Fannie Mae loan applications include questioning the borrower on whether they have ever had a foreclosure or deed-in-lieu of foreclosure. If so, the loan is more critically analyzed, and may not be so easy to obtain.
Did you know that until recently, mortgage debt on a primary residence that was forgiven from a Short Sale or foreclosure could be counted as taxable income by the IRS?
On December 20, 2007, the Mortgage Forgiveness Debt Relief Act was signed into law. Effective from January 1, 2007 through December 31, 2009, any foregiven or “cancelled” primary mortgage debt from a principle residence, or debt used to improve the residence, will not be taxable. The limits are up to $2,000,000 for married couples filing jointly, or $1,000,000 if filing separately. You can find more information on the IRS online filing form titled Reduction of Tax Attributes Due to Discharge of Indebtedness.
Be aware, however, that second mortgages or home equity lines are not always exempted. Second homes and investment properties are still subject to taxation for forgiven debt. There is an exception when the borrower is insolvent, meaning, has liabilities are greater than assets. For a detailed explanation and a worksheet to figure if you have any liability, please visit the IRS page about “Questions and Answers on Home Foreclosure and Debt Cancellation”.
And of course, consult with your CPA or tax accountant on your particular situation.
In summary, new laws and regulations are helping people to avoid these burdens.
I hope this information helps you understand and know the choices you have regarding your situation in response to selecting a loan modification, new FHA rescue bill refinance, or short sale as your remedy.
Important Notice: the following post is not intended to be legal, credit, or tax advice, you should seek competent counsel from those who are experts in their respective field regarding these matters
Writers comment: if you are truly seeking to avoid foreclosure, you must do your part to help put together the assistance you need by providing all the documents needed and required to put these solutions together for you. By not gathering documentations and providing them immediately to your housing specialist you are putting your situation at risk and may end up in foreclosure anyway. It is not our desire for this to happen to anyone, therefore you must do you part to be part of the solution. ~ We look forward to helping you, Thank you
California Foreclosure, California loan modification, California short sale, Credit Report, Deed in Lieu, Deed in Lieu of Foreclosure, Forebearance, Foreclosure, Foreclosure alternatives, Foreclosure solutions, Loan Modification, REO, Refinance, Short Sale
