In these complex economic times, you may find yourself in the position of possibly losing your home to foreclosure. Lenders understand these difficulties and have some flexibility in working with borrowers who run into financial trouble.
For example, according to the FreddieMac guidelines on alternatives to foreclosure, the secondary mortgage market gives a mortgage lender broad discretion to extend relief "to a borrower who encounters hardship, is cooperative and has proper regard for fulfilling obligations . . ."
This article explains steps you can take to work with your lender in an effort to preserve your home – and your credit rating. The key to each of these methods is cooperation. Once you realize you are having financial difficulties, you should notify your lender immediately. The sooner you contact them, the more time there will be to try and work out an acceptable arrangement. The more forthcoming you are, the more willing they will be to help.
The first potential remedy is referred to as temporary indulgence. Here, the lender, if asked, may grant the borrower a short period of time -usually not more than three months - in order to cure any delinquency. However, this is merely temporary relief, and by the end of that short grace period, the borrower must be completely current.
Another approach is a repayment plan. Under this scenario, the borrower is given a fixed period of time, usually not to exceed one year, in which to bring the mortgage current by immediately making and continuing to make payments in excess of the monthly loan payment. It is important to get this repayment plan in writing and signed by both the lender and the borrower.
Lenders also can enter into what is known as a special forbearance relief agreement. Under this plan the regular monthly loan payments are suspended or reduced for a period of up to eighteen months from the due date of the first unpaid monthly installment. At the conclusion of this relief period, the regular payments must be resumed. Additionally, you and the lender must have agreed upon a plan to pay back the loan amounts that were suspended.
If you are in the military, the Soldiers' and Sailors' Civil Relief Act of 1940 provides various forms of relief, but you should check with your military or civilian lawyer to determine your eligibility under that Act.
Another avenue that may be available to you is known as a short sale. Here, the lender will authorize you to sell the property, even though its value is less than the loan amount. The lender receives all the proceeds and you are absolved of any responsibility towards the debt.
The deed in lieu of foreclosure is another remedy that may be available to you. Under this arrangement, you deed your property to the lender (or to whomever the lender designates) and this is in lieu of (instead of) foreclosure proceedings.
The key element is time. If you are having, or think you may have, problems making your loan payments, call the lender NOW. The longer you wait, the less time there will be to try and remedy the problem before it becomes a crisis. And don't be embarrassed to ask for help. The worst thing the lender can say is no - and they just might say yes.
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