The following information is not legal advice. It is, however, some common sense advice from a real estate agent who has dealt with a lot foreclosures and short sales.
So you’re late on you mortgage payments, or you know you’re going to be soon. Perhaps you already received notice that you’re behind and the bank will foreclose on you and throw you out of your house if you don’t pay up. Fortunately, there are several alternatives to foreclosure in West Michigan. Here is a brief description of all the current options.
1. Do Nothing: This will ensure that you will lose your home to foreclosure and ruin your credit for several years. However, if you’ve decided to go work in a T-shirt shop in Key West and live on the beach under a palm tree, this might work for you. But if you’d like to keep your credit intact, (or not too damaged), or if you’d like to keep your home or someday buy another home, doing nothing is a very, very bad course of action.
2. Retire The Loan: This means you’ll have to pay off the entire debt. You probably can’t do this alone. However, if you have a relative or friend willing to buy the home and sell it back to you, that could work. Don’t count this idea out too quickly. It has worked for many people. There are investors who will, in some cases, buy your home and give you an option to buy it back.
3. Refinance The Loan: The Federal Government is now encouraging lenders to restructure or refinance loans. We’ll see how this all pans out. Even if you’ve been told in the past you didn’t qualify to restructure or refinance, the rules have changed enough to where you can keep asking the lender for this consideration. They may, they may not, but it doesn’t hurt to keep asking.
4. Reinstate The Loan: The lender may agree to reinstate your loan if you make up all your late payments, pay fines, taxes and fees. Again, the rules have changed so it doesn’t hurt to keep asking. But remember, if you can catch up and the bank agrees, you’ll have to keep paying. If you can’t, there’s not much point to this.
5. Get A Loan Forbearance: This is a temporary reduction or suspension of monthly payments. Once you’ve gotten on your feet, the loan will be reinstated back to its original terms. You’ll have to prove you can resume your regular payments. If you know things are going to go better in awhile, this could work. Again, you’ll need to keep asking the lender for this.
6. Modify Your Loan: This is what the Federal Government is pushing for now. The lender may change the monthly payments, interest, and/or length of the loan, to make the payment affordable for you. If you want to keep your house and you know you’ll be able to handle the new loan, this may be what you want to shoot for.
7. FHA Partial Claim: Under certain circumstances, the FHA will pay up to a year of delinquent payments. You’ll have to be four months behind on your FHA loan before you can ask for this. It is not used often, but it does exist. However, being four months behind puts you dangerously close to losing the home to foreclosure.
8. Deed-In-Lieu of Foreclosure: Simply put, this is where you give the house back to the bank “in lieu of” foreclosure. Many banks don’t want the property back because they don’t want to “own” your house. And, a Deed-In-Lieu can be just about as bad for your credit as a foreclosure…if a bank reports it that way. On the other hand, if you can negotiate with the bank to report it as a short sale, promise to leave the home in good repair and move out quickly, some banks will see the value of speeding up the process, especially if they have investors ready to buy the property.
I’ve done this with several homes in the Grand Rapids area. Think of it as a super-quick short sale.
9. File Bankruptcy: In some cases this is a home-owner’s only reasonable option. It should be considered as a last resort, sometimes you’re allowed to keep your home, but it isn’t easy and the impact on your credit is devastating for several years. Of course, if you’re planning on living under the palm trees…
You absolutely need to speak with an attorney before considering this.
10. Sell Your Home: You have the right to sell your home at any time before foreclosure, after foreclosure and during the six-month redemption period. Of course, you’ll need to get started quickly on this. If you can’t sell it for the amount owed, it’s called a “short sale” and you’ll need your bank’s approval to sell it for less than the balance of your mortgage. This is the most often used method of avoiding foreclosure in today’s chaotic housing market. To learn more on short sales, read my posts, “Short Sales in Grand Rapids” and “How to do a Short Sale.”
Obviously there is a lot to consider when facing a possible foreclosure. Please feel free to contact me directly anytime with questions, or if you’re interested in buying or selling real estate.
—Douglas Fast (616) 293-9101
We sell homes, mutli-families, lots, acreage and commercial property in the Greater Grand Rapids area including the counties of Kent, Ottawa, Allegan, Muskegon, Barry, Ionia and Montcalm. We sell homes in Ada, Alaska, Allendale, Belding, Belmont, Byron Center, Caledonia, Cannonsburg, Cascade, Cedar Springs, Cutlerville, Dutton, East Grand Rapids, Foroest Hills, Grandville, Hastings, Ionia, Jenison, Kentwood, Lowell, Middleville, Rockford, Standale, Walker, Wayland, Wyoming and all of West Michigan.
Member in good standing with: Grand Rapids Association of Realtors®, Michigan Association of Realtors®, National Association of Realtors®
