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Loan Modification
A loan modification is a change in
any of the terms of the original note. This
includes decreasing the interest rate, re-amortizing the
remaining balance, extending the term of the loan, or
other options at the lender's discretion to assist the
borrower through a temporary set back.
Generally a lender will consider a
loan modification when foreclosure is eminent and the
borrower's income has been decreased or unable to make
the mortgage payments, but will be able to keep the loan
current after the loan modification.
Mortgage Refinancing
Mortgage refinancing is an option
where the lender would allow the borrower to refinance
his or her existing mortgage, wrap in any late payments
and fees, and cash out part of his or her equity in the
home to allow the borrower to regain control of a
debilitating financial situation.
Refinances are generally open to
borrowers that face a temporary set back in their
financial situation, have shown outstanding credit
history in the past, and can prove that he or she can
support the new mortgage payment.
Second Mortgage, Line of Credit
A lender may offer a second loan or
junior lien to a borrower in order to make up any back
payments, late fees and other charges necessary to
reinstate the loan. The borrower, in return, will
be required to make an additional mortgage payment to
cover the principal and interest payments on the second
loan. Interest rates often rival credit cards and
should be looked at with caution.
A borrower may also be able to
borrower money from his or her bank or against a 401K or
pension to use to repay the deficiency and reinstate the
loan. Conditions may apply.
Sale of the Home
Selling a home is an alternative
for borrowers that are unable to reinstate the loan and
face eminent foreclosure. This option allows a
home owner to try to salvage his or her credit, pay off
the loan, and retain any remaining equity in the home.
By informing the lender of this option, the lender may
delay the foreclosure proceedings in order to allow
sufficient time to sell the home.
In certain cases, the lender may
allow the borrower to sell the home when the proceeds
from the sale are not sufficient to pay off the existing
loan. This is known as a short sale.
A borrower should check with his or her lender to
discuss this option. Furthermore, the borrower may
have to pay taxes on any loss the lender writes off from
the short sale. A borrower should consult his or
her tax professional before agreeing to a short sale.
Deed-in-Lieu of Foreclosure
(DIL)
A deed-in-lieu of foreclosure is a
voluntary conveyance of title to the lender.
Generally this is a last ditch effort by the borrower to
avoid the negative consequences of foreclosure. In
return for the voluntary conveyance to the lender, the
borrower is often released of any personal
responsibility for the mortgage.
In order to qualify for a DIL, most
lenders state that there must not be a second mortgage
or junior liens on the property. Properties with
values in excess of the amount owed against the home (to
include normal closing costs) should consider selling
the property before voluntarily conveying the home to
the lender.
There is free help and assistance
for home owners facing the possibility of foreclosure.
If you would like to talk with someone about your
situation,
click here.
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