If you are unable to continue to make your payments, you have the following options:
Selling your home
Depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full. If you have questions about how much your home is worth and weather or not you have the equity to sell outright, contact me today for a market analysis on your home. I can usually get your lender or servicer to postpone foreclosure proceedings if you have a pending sales contract or if you have put your home on the market.
This approach works if proceeds from the sale can pay off the entire loan balance plus expenses such as closing costs and commissions.
A sale can allow you to avoid legal fees and damage to your credit rating. This approach can also protect your equity in the property.
If you have a genuine hardship situation and you also have negative equity, meaning that you owe the bank more than your home is worth, your lender or servicer may let you sell your house before foreclosing on the property and forgive any shortfall between the sale price and the mortgage balance.
This approach has many benefits. It avoids a damaging foreclosure entry on your credit report, which will affect your credit for 7-10 years. It may also keep the lender from attempting to sue you for a deficiency judgment. Utah law allows lenders to sue borrowers for the deficiency between what they owe and what the foreclosed property sells for. In addition, due to the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe, even though it still must be reported on your federal tax return.
If you decide on this option, contact me right away. Remember Short Sales are very specialized transactions which require broad experience and expertise in lending and appraisals, as well as very specialized knowledge of the foreclosure process and bank protocols. Make sure that you are working with someone who has a proven record of success in closing short sale transactions.
This is a relatively uncommon solution in which your lender agrees to cut or suspend your mortgage payments until you can start paying again and make up the missed payments.
This is usually only an option if you can show that your income is reduced temporarily (for example, you are on disability leave from a job, and you expect to go back to your full-time position shortly).
Forbearance isn’t going to help you if you’re in a home you can’t afford.
Under this option, you and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you.
Under the government's recent foreclosure relief plan, modifications typically start with reducing the interest rate and extending the term of the loan to reduce monthly payments. Missed payments are added to the new loan balance. A modification also may involve reducing the amount of money you owe on your primary residence by forgiving, or cancelling, a portion of the mortgage debt.
A loan modification may be necessary if you are facing a long-term reduction in your income or increased payments on an ARM.
Before you ask for forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.
Personal bankruptcy generally is considered the last option. A bankruptcy stays on your credit report for as long as 10 years, and can make it difficult to get credit, buy another home, get life insurance or even get a job. Still, the process was created to offer a fresh start for people who can’t satisfy their debts.
If you have a regular income, Chapter 13 may allow you to keep property, like a mortgaged house or car, which you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property.
After you have made all the payments under the plan, you receive a discharge of certain debts.
Deed in lieu of foreclosure
With your lender or servicer's permission, you transfer your property title to them in exchange for cancellation of the remainder of your debt. Though you lose your home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, although under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence can be excluded from income when you file your federal tax return. (You still have to report it.) A deed in lieu of foreclosure may not be an option if you have more than one loan secured by your home.