Can I Renegotiate Your House Loan to Stop Foreclosure?

Oct - 18
2020

Can I Renegotiate Your House Loan to Stop Foreclosure?

A foreclosure will remain on your credit report for the next seven or 10 decades and will have a significant negative effect on your overall credit score. This will effectively bar you from many loans with favorable terms during that period and might increase interest rates for almost any existing lines of credit you have. The lender has many choices available to assist borrowers maintain possession of their property, and you can work with your lender to negotiate the best possibility for you.

The Foreclosure Procedure

The foreclosure process can take anywhere between six months to over a year to complete and normally starts after the missed payment together with the issuance of a notice of default. Sometimes, a notice to accelerate may precede a notice of default, providing the borrower an additional 30 days to reinstate the mortgage before the foreclosure process formally begins. When the notice of default was issued, the debtor will have approximately three months (depending on state legislation ) to cure any conducive payments before the home goes to a foreclosure sale. Back in California, a sale could be scheduled three months after the notice of default is registered, and the house owner can heal as late as five days before the purchase. The period preceding the foreclosure sale provides a vital period for negotiation, where the lender will present the debtor with several options to prevent foreclosure.

Lender stinks to Stop Foreclosure

For the most part, it is in the lender’s best interest to keep up the borrower’s possession of the home. Lenders are in the business of originating loans, not promoting property. According to Freddie Mac, the average cost to the lender is roughly $50,000 per foreclosure. Furthermore, a single foreclosure can impose costs of about $34,000 on local government agencies along with a $220,000 worth reduction on neighboring homes. The trickle-down effect of lower property values because of foreclosure can be very expensive to your lender. Therefore, lenders will attempt to work out a solution with a struggling borrower through a special forbearance, loan modification or a partial claim.

Special Forbearance

Struggling homeowners may be eligible for a special forbearance if they could prove a reduction in income or an increase in living expenses. A special forbearance is a temporary reduction or suspension of payments. Homeowners must provide evidence which they will have the ability to afford payments after the forbearance period is finished, usually by providing financial statements and employment documents.

Loan Modification

A loan modification is a permanent change to the terms of an existing loan with the desirable result being lower monthly payments for the duration of the mortgage. The borrower will need to provide documents showing income and expenses, assets and obligations, and also a hardship letter explaining the motives for financial difficulty. Homeowners may also be eligible for a loan refinancing, in which they repay an existing mortgage by taking out a fresh one with different, hopefully more appealing, loan terms. The application process is similar to obtaining a new mortgage, necessitating documents demonstrating proof of income, assets and obligations, and also a credit rating. The downside to a refinancing is the fact that homeowners with now lower credit scores can qualify only for loans with higher interest prices. Furthermore, a refinancing is typically accompanied by fees along with a down payment. In 2009, the Obama Administration introduced the Making Home Affordable App (see Resources) to provide additional support for homeowners.

Partial Claim

A partial claim is a one-time, interest-free payment made by the U.S. Department of Housing and Urban Development (HUD) to the lender in order to bring a mortgage present. The borrower will need to sign a promissory note, and a lien will be placed on the property. The lien will be eliminated when the debtor pays off the entire partial claim amount. To be eligible, the borrower must be at least four months delinquent (but no more than 12 weeks ) and provide evidence of ability to pay the complete partial claim at a later date.

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