Options to Foreclosure

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• 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 a 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. 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 has 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 a 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 missed three payments, the services could add those three payments to the back end and push the payoff date to September 2034.
  
  Effect of 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
  

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