How Do I Avoid Foreclosure:Where Do I Start? Part 5

A step by step process for distressed homeowners.

This is the fifth in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.

We continue the discussion of various options that a distressed homeowner may have. Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.

Refinance

This option may work if you can meet two critical criteria. First, you have to have sufficient equity in the property to be able to qualify for a refinance. In this market that usually means at least ten percent of the current market value. Lenders would like to see more. Second, your credit can not have been too badly damaged. Missed mortgage payments have a major impact on credit scores.

Few refinances result in a reduction in the monthly payment and/or a reduction in principal. Even if you do meet the two primary requirements, unless you have a chunk of cash to contribute to reduce the principal, higher payments will be the most likely result.

Also, unless the underlying hardship has been resolved, you may still have difficulty making the revised mortgage payment.

Mortgage Modification

Homeowners who can prove that they can come close to affording their monthly mortgage payment may qualify for a loan modification. Lenders are sometimes willing to change the terms of a loan if the modification will keep the loan producing. The most common form of modification is an interest rate and payment reduction for a period of time, usually one to five years. At the end of the adjusted period the terms revert back to those originally set. Any short fall that the lender takes during the adjustment period is usually added to the principal. So in effect, the payments are reduced for a period of time and the term of the loan is extended to allow the borrower to repay the loan in full.

There are very few instances in which the lender reduces the principal balance. The borrower signed a commitment to pay the loan balance and the lender expects payment in full.

Lenders are very cautious when considering loan modifications and will require extensive documentation as proof that the borrower will be able to meet the entire commitment of the modification.

A note of caution to those considering a loan modification. Loan modification fraud is rampant in the marketplace. Exercise great care before you pay any individual or organization to represent you in an attempt to modify your existent mortgage. Those asking for payment in advance should be scrutinized even more carefully. The California Department of Real Estate publishes a list of individuals and organizations that are suspected of fraudulent activities and the California State Bar has published a list of attorneys who have crossed the ethics line. Dealing with individuals and organizations outside of California is even more dangerous. The link to the HUD web site below should be helpful.

Home Affordabel Mortgage Program

Here are links to a few web sites with helpful information for less specific situations:

http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure

http://www.ForeclosureStopper.org

http://www.CDPE.com

In future posts we will discuss other options people may use to avoid foreclosure. Those posts will be coming soon.

Feel free to contact Mike West, Realtor, CDPE,  if you have any questions or need help.

(916) 337-0658 e-mail: Mike@BMikeWest.com