The
foreclosure spiral begins when your loan
payment becomes 16 days overdue. At that
point, your mortgage servicer will try
to contact you to work out a repayment
schedule to bring your loan current.
If your
first payment becomes 30 days delinquent
and the next month's payment looks
doubtful, collection attempts begin in
earnest. If your payments fall 90 days
behind, the servicer will likely refer
your mortgage to an attorney or other
entity that will initiate formal
foreclosure proceedings.
With a
foreclosure, the lender takes possession
of the house, evicts the tenants, and
puts the property up for sale.
Effect
of a foreclosure on your credit record:
Devastating and long-lasting. It remains
on your credit record for at least seven
years. Avoid foreclosure if possible.
Options to Foreclosure
REPAYMENT PLAN
When you fall behind on the payments,
you'll talk first with someone from the
mortgage servicer's collections
department. The collections department's
aim is to get you caught up, and the
sooner the better. The employees there
will demand at least a partial payment
now and the rest of the payment soon --
and a promise that you'll pay on time
each month after you're caught up.
Effect
of a successful repayment plan on your
credit record: Minor to moderate,
depending on how far you fell behind.
Less than 30 days late will have minimal
impact on your record; 30 to 59 days
late will put a minor but noticeable
mark on your record; 60 to 89 days is
worse. If you fell behind by 90 or more
days, but eventually caught up, your
credit score will drop quite a bit. When
you fall behind by 30 days or more, that
is counted as a delinquency. Two or more
delinquencies are worse than one.
FORBEARANCE
The loan servicer might agree to suspend
payments for a few months, until you get
back on your feet financially. A
forbearance isn't for an indefinite
period; it might be for one or three or
six months, and after that, you'll be
expected to make full payments on time.
Forbearance is most commonly offered to
disaster victims and people who have
lost their jobs but who feel confident
they'll find well-paying employment
quickly. After the forbearance period
ends and you've resumed making monthly
payments, the service will expect you to
pay extra each month until you're caught
up. In most cases, you'll be expected to
catch up within a year or 18 months.
Effect
of a successful forbearance on your
credit record: Minimal to moderate,
depending on the circumstances.
LOAN MODIFICATION
A loan modification is similar to a
refinance: The lender agrees to alter
the loan, but with few or no fees. The
lender might reduce the interest rate,
change the loan from an ARM to a
fixed-rate mortgage, or raise the
monthly payment by a few dollars so you
pay off the entire loan, including the
past-due amount, by the loan's original
end date.
Less
frequently, the servicer will tack the
missed payments onto the end of the
loan. In other words, if you got a
mortgage in June 2004 and it's supposed
to be paid off in June 2034, but you
miss three payments, the servicer could
add those three payments to the back end
and push the payoff date to September
2034.
Effect
of a modification on your credit record:
Minimal to moderate, depending on how
far behind you fell on your monthly
payments.
DEED IN LIEU OF FORECLOSURE
This option often is referred to as a
"deed in lieu." The borrower offers to
hand over the deed to the property so
the lender can take possession of the
house and sell it. The lender can refuse
to accept a deed in lieu of foreclosure,
and it often does, for a couple of
reasons. First, the lender has to incur
the costs of fixing up the house and
paying real estate commissions. A short
sale is preferable. Second, the lender
inherits any problems with the title.
Foreclosure clears away many title
problems.
Effect
of a deed in lieu of foreclosure on your
credit record: Severe.
PARTIAL CLAIM - available only
for HUD loans
Under the Partial Claim option, a
mortgagee will advance funds on behalf
of a mortgagor in an amount necessary to
reinstate a delinquent loan (not to
exceed the equivalent of 12 months PITI).
The mortgagor will execute a promissory
note and subordinate mortgage payable to
HUD. Currently, these promissory or
"Partial Claim" notes assess no interest
and are not due and payable until the
mortgagor either pays off the first
mortgage or no longer owns the property.
SHORT SALE
In a short sale, you sell the house for
less than you owe. You can't do a short
sale without the lender's permission.
With a
short sale, you make necessary repairs
to the house; pay the real estate
commission, taxes and government fees;
and give the lender whatever money is
left over -- a partial payment.
Effect of a short sale on your credit
record: Severe.
BANKRUPTCY
A homeowner filing a Chapter 7
Bankruptcy will forfeit property and
eliminate any potential deficiency.
Chapter 13 Bankruptcy provides the
homeowner the ability to cure the
default over an extended period of time
(30-60 months) while maintaining the
current monthly payment. However, this
does not change the terms of the
mortgage, and since the homeowner cannot
afford the current regular monthly
payment, they may not be able to afford
the current payment plus the delinquency
amount.
Effect of a bankruptcy on your credit
record: Severe.
Sources:
http://www.bankrate.com,
http://www.hud.gov and
http://www.cccsnevada.org
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