Most homeowners are left with little hope after receiving a Notice of Default or a Notice of Sale on their home. However, there are several things clients can do to protect themselves.
1. Pay the reinstatement amount and reinstate the loan:
Although most people do not have the thousands of dollars necessary to come current on the loan, banks cannot legally foreclose if you are able to pay back missed payments and interest in one lump sum. While this seems obvious to most, it is something to consider if you think you may default on your loan. Even if you are unable to currently pay your mortgage, it is important to save as much of your monthly payment as possible so that this option is available to you. The reinstatement amount typically consists of any missed payments, as well as any additional interest or fees that have accrued on the unpaid loan amounts. Some banks may be willing to take less to reinstate the loan so that they can consider you for a more permanent solution.
2. Loan Modification: HAMP, Lender Moficiation Options, Loss Mitigation
Loan modifications have gained the most attention in the current real estate market. A loan modification is unique in that a bank agrees to modify the interest or principal on a loan in order to avoid foreclosing on a property. Most banks will not begin to consider an application for loan modification until a homeowner is behind on payments. Once they are behind, a homeowner will then submit an application with financial records and statement of hardship.
There are two basic loan modification programs which can stop foreclosure. Under HAMP, a bank is given guidelines and incentives by the federal government to provide loan modifications for those who qualify. Banks also have in-house modifications for those homeowners who do not qualify under the government guidelines of HAMP. Most banks will push back a sale date as long as there is a good faith commitment to the loan modification process and the homeowner is doing everything they can to stay in their home. However, most banks will not suspend a sales date until the last 48 hours of the sale date or if there have already been multiple postponements of sale..
Loan modifications are a great long-term solution to stopping foreclosure and staying in your home. However, there is a high probability that a bank will start the foreclosure process. Also, there is no guarantee that you will be given a modification before a bank will foreclose.
Besides loan modification, many larger banks also offer a forebearance option. A forbearance is appropriate for clients who can demonstrate a significant hardship beyond the normal circumstances. This department is usually separate from a loan modification department so if a homeowner has a sale date set in the near future, they will need to contact and provide documentation to this separate department. In a forebearance, a bank can set up a new payment plan, temporarily suspend payments and/or interest, or forgive overdue amounts. Relying on a forbearance is risky but it may provide sufficient time to pursue another more permanent resolution.