When borrowers have fallen behind on their home loan payments, there are five basic options:
1. Loan Workout: This is when you work out with a lender a reinstatement of the loan. This could mean paying back the arrears (overdue payments) over a period of time or adding the arrears to the loan balance. This does not alter the terms of the original loan.
2. Loan Modification: A borrower can request a loan modification to make it more affordable. This could include a reduction in interest rate or even a reduction on the principal owed.
3. Deed-in-lieu of foreclosure: A borrower in default can offer to sign over title to the house to the lender instead of foreclosure. However, this may not be feasible if there is more than one lender with a lien on the home.
4. Short-sale: To avoid having the house sold a trustee sale, a borrower can try to sell the house at a discounted price. This requires lender approval and usually a lender will require that the property be marketed for some time, usually 90 days, before they will agree to take less than what is owed.
5. Foreclosure: This option is the one that the borrower does not control. If all other options have been exhausted to no avail, the lender will foreclose to take possession and title to the house.
A lot of changes are taking place in the mortgage loan industry. For example, loan modifications are now becoming more commonplace than in the past year. And thanks to a new pilot program, we can process loan modification applications rather quickly and get a prompt response from the lender.
For a free initial consultation regarding these and other related issues, please contact attorney and financial counselor Susana B. Tolchard at 661-287-9986.