Avoiding foreclosure

REPAYMENT PLAN

• Least complicated solution: you and the lender agree to a plan to make up past payments, often without a written agreement.
• While paying off your missed payments, you’ll have to keep making regular payments.
• Usually gives you between three and 18 months to make up for the missed payments.

SPECIAL FOREBEARANCE

• A signed, written repayment agreement between you and your lender covering a plan to get back on track after you’ve missed three or more payments (but less than 12).
• For a limited time, the lender cuts or suspends your payments, but you have to pay back what you missed and make the rest of your payments in full. May also be combined with a “loan modification” that changes the terms of the loan.
• You need to show the lender why you fell behind – and why you think you can make the remaining payments.
• If you can’t keep up with the new payment plan, the foreclosure process can begin.

LOAN MODIFICATION

• Changes the terms of your loan – cutting the interest rate, for example – to make the payments more affordable. (The new rate has to be fixed).
• You may mean you stretch out the number of payments you’ll have to make and the length of time you pay them.
• You still have to pay any principal, interest, taxes or insurance that you owe. The new loan also may exceed the value of your house.
• Your mortgage has to be more than 12 months old, three or more payments behind and not already in foreclosure.
• You have to show why you fell behind and why you can now pay the new loan.

PARTIAL CLAIM

• Lender covers the missed payments, which you agree to pay back, under a no-interest loan program overseen by the Department of Housing and Urban Development.
• New loan is like a second mortgage – which you have to repay off after you pay off your first mortgage or sell your house.
• You can’t be more than 12 months behind and can’t use this option as part of a loan modification. Your money can’t be used to pay late fees or other expenses like legal fees.
• You have to show that you tried making up missed payments through forbearance or loan modification – and that you’re now able to pay your first mortgage.

SHORT SALE / PREFORECLOSURE

• You sell your house and use the money to pay off your mortgage, and you avoid having a foreclosure on your record.
• You may not get enough for the house to cover the mortgage, but the sale price has to be at least 63 percent of the unpaid loan and 82 percent of the property’s appraised value. If the bank takes less than the full unpaid balance, you may owe taxes on that amount.
• You also have to sell the house outright to a third party.
• Your lender has to agree to the sale, and you’ll need to show that you fell behind because your income went down or your expenses went up.

DEED IN LIEU OF FORECLOSURE

• If you don’t qualify for any of the other options, this one lets you sign over your house to the lender to pay off your mortgage.
• Has to be completed within six months of the date of default or foreclosure begins. If you’ve defaulted on one of the other options, foreclosure begins within 90 days.
• You have to be at least a month behind, show why you can’t make payments.
• Lender may ask for other conditions before agreeing to a Deed in Lieu of Foreclosure option.