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How To Deal With Your Lender When Facing Foreclosure

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Tips to stack the decks in your favor

Why would an impersonal institution — a mortgage bank — want to compromise with a homeowner who is behind on his payments? Well, some banks have more of a "compassionate personality" than others, but the bottom line is that it costs a bank up to $80,000 to foreclose on a home!

What Is a Workout?

A workout is a compromise between a lender and a homeowner who is in default on her loan or anticipates that she will soon default. A workout may involve temporarily or permanently modifying the terms of the loan to make the mortgage more affordable or the default more "fixable" to the borrower.

What Workout Alternatives Are Available to a Homeowner?

Lenders are amenable to all sorts of workout arrangements that can help a homeowner get back on track. Mortgage lenders can agree to:

  • "Fix" or keep constant an interest rate or payment that is about to start adjusting.
  • Lengthen an introductory "teaser" interest rate or payment.
  • Grant a temporary forbearance that allows the borrower to stop making payments for up to six months.
  • Defer some payments to the end of the loan, adding several months to the loan term.
  • Add a large lump sum of back mortgage payments owed by a buyer into the total loan balance, so it can be paid in small installments over the entire life of the loan.
  • Modify the length or interest rate of the mortgage loan, reducing the monthly payment amount.
  • Waive legal fees and penalties that a buyer has incurred.
  • Allow the owner to sell the home for less than is owed on it, effectively forgiving part of the mortgage balance.
  • Allow the owner to transfer the home to a buyer who assumes the mortgage, even if the mortgage was nonassumable.
  • Agree to take a deed in lieu of foreclosure, which lets the owner voluntarily give the property back to the lender, rather than going through the entire foreclosure process.
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