Lender Solutions to Foreclosure
Lenders have tools to get borrowers back on track. Though lender solutions vary, possible foreclosure prevention tools include:
Reinstatement. Occurs when you pay the lender the entire past-due amount you owe, plus any late fees or penalties, by an agreed upon date.
Repayment plan. Under this arrangement, you add an additional amount of money to your regular monthly payment until you make up the past-due amount you owe.
Forbearance. A formal agreement with the lender under which your mortgage payments are reduced or suspended for an agreed upon period. At the end of that period, you resume regular payments, and bring the loan current through a lump sum payment or additional partial payments over a number of months (unless the loan has also been modified to make this unnecessary).
Loan modification. Involves permanently changing one or more of the terms of the mortgage to make payments more manageable for you. Modifications include lowering the interest rate, extending the term of the loan, or adding missed payments to the loan balance.
Mortgages through the Federal Housing Administration (FHA) and Veterans Administration (VA) may offer different or additional foreclosure alternatives. For example, an FHA borrower may be eligible for a one-time payment from the FHA insurance fund to the lender to bring the mortgage current. The borrower is responsible for repaying the “partial claim” when you pay off the mortgage or sell the property.
The best solution (sometimes called a “workout” or “cure”) will depend on your situation. A repayment plan may be a good remedy for someone who has to make up only one missed payment. A loan modification may be necessary for someone facing a long-term reduction in income. You and the lender work together to determine if any of the available tools will get you back on track.
If you and the lender cannot agree on a feasible repayment plan or other remedy, look into filing Chapter 13 bankruptcy. This temporarily suspends the foreclosure process and can force the lender to accept a repayment plan that is more affordable for you. Bankruptcy isn't always a solution—it will damage your credit and new bankruptcy laws enacted in 2005 make it tougher to file bankruptcy for some people. But depending on the state you live in, bankruptcy might help save your home. Talk to a HUD-approved housing counselor to learn more about this option. (See Housing counseling can help.)
This brochure was created by Consumer Action’s Housing Information Project. © 2007 Consumer Action. Rights Reserved.