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homeowner options

If a homeowner does nothing, they will most likely lose their home through foreclosure. Your mortgage is a secured lien that your home is the collateral for. These liens do not go away unless dealt with. Additionally, foreclosure is a major credit problem which will affect the borrower’s ability to obtain future credit for homes, rentals, auto's etc. for years. Surprisingly, this is a homeowner’s MOST common reaction yet the WORST thing they can possibly do. Swift and immediate action resolves problems best.

In some cases the lender may be agreeable to a full payoff where they award a discount. In many cases, this is the most cost effective option for the homeowner. Instead of having to pay the full face principal on the loan and continue to make interest payments, they can negotiate to pay a reduced amount of the remaining balance. Obviously the downside is that if the homeowner is having problems making only the monthly payments, they might not have the ability to pay off the loan. However, this option is so attractive and the discount can often be so substantial that it is worth getting creative to afford this option. Some possible solutions are:

• Withdraw money from your 401K as a hardship distribution - A homeowner is allowed to make a 401K withdrawal without penalty to avoid a foreclosure. For more information from the IRS visit Hardship Distributions.

• Credit cards and hard money lenders - In some cases it might make sense to accomplish the payoff using this option. As an example, let's say the lender is offering a 50% discount on a 16% interest loan and the homeowner's credit card APR is 18%. The payoff discount being offered is attractive so it makes sense to use a credit card for the payoff. In addition, the homeowner has now turned secured debt into unsecured debt ensuring they will not lose their home. It is not common to get such a heavy discount, but some lenders will offer them. Most mortgage lenders will not accept credit cards as a form of payment, but some credit cards offer checks than in most cases can be used as a regular check.

Completely pay off the entire loan amount plus any default amounts and fees. Typically this is accomplished by refinance of the mortgage loan. The new loan is usually at a higher interest rate, plus there may be a prepayment penalty because of the recent default. This option is available if the home is worth more than the payoff amount of the delinquent loan and assumes the homeowners still have reasonably good credit scores.

Paying the entire past-due amount on the mortgage loan (all missed payments, plus interest, attorney fees, late fees, taxes, and other fees). This requires the lender's approval, particularly if foreclosure has actually started.

Work with the mortgage lender to rearrange the conditions of the loan (add years to the loan term or increase the amount of monthly payments to repay the delinquent payments and costs over the remaining life of the loan). This may allow the homeowner to get caught up without having to refinance the entire loan. To qualify, you must prove to the lender you have fixed the problem that caused the late payment. This requires lender approval.

Lender might agree to a temporary repayment plan based on the homeowner's financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements. This requires lender approval.

Give the property to the lender instead of letting the lender take the property by foreclosure. While less damaging than a foreclosure, this will still impact the borrower's credit score. Banks generally require the home be well maintained, all mortgage payment and taxes to be paid current and the home must be in good condition. This requires lender approval.

There are two types of home sales:

• If the property is worth at least enough to pay off the mortgage debt, the homeowner may sell home without lender approval through a conventional home sale. This is the best method for protecting a homeowner's credit score, but becomes more difficult to do as the number of missed mortgage payments increases.

• If the property IS NOT worth enough to pay off the entire mortgage debt, a short sale, also known as a pre-foreclosure sale, can be negotiated with your lender by a real estate professional. This requires lender approval and may affect your credit score