NHS offers foreclosure prevention counseling for homeowners who become behind in their mortgage payments. Currently, this counseling is offered to residents of Richland County, only, with referrals to other agencies given to those outside the jurisdiction. When needed, NHS counselors will help clients to create a plan of action and speak to their lenders.
If you are facing a foreclosure, the first step should be to speak to your lender to determine if you can reach an agreement that will benefit both of you. When speaking to your lender, keep these options in mind:
Payment Plan: An agreement in which you promise to make up any missed payments by sending your regular payment plus a pre-agreed to additional amount each month until you are caught up.
Forbearance: an agreement by the lender to allow you to skip one or more payments completely and make them up later through a payment plan. A forbearance is usually in writing. You must have a good reason why you can't make your payment(s), such as serious illness, injury, or other temporary loss of income. You also need to prove that you will be able to make payments again at the end of the forbearance period.
Loan Modification: an agreement that usually changes the terms of your loan. This modification could lower your interest rate, and/or lengthen your amortization schedule, thus lowering your payment amount to one you can afford. The lender could use a modification to bring your loan current by adding the missed payments to your current loan amount. This, however, could increase your monthly payments, so you would need to prove you could handle the higher payment without defaulting again.
Partial Claim: If your loan has private mortgage insurance (PMI), the insurance company may lend you the money to bring the loan current. The company would take a second mortgage on your property, usually at low interest. Often the payments on the second loan don't start until you have had time to recover from the hardship. You will need to prove that you have solved your financial problems and are able to make your full mortgage loan payments in the future.
Pre-foreclosure Sale: If you have some equity in your house, but not enough to pay all of the selling costs, your lender may agree to delay the foreclosure and give you time to sell the house. If you get less from the sale than you owe on the loan, the lender will sometimes forgive the difference. This costs the lender less than a foreclosure and is better for you and your family than being forced out by a court order.
Each lender has different requirements for pre-foreclosure sales. Almost all insist that you list the property for sale with a realtor and that you cooperate fully to get the property sold quickly. Most lenders require that you pay all of part of your mortgage payments while the house is being sold. If you make more money on the sale than you owe, you keep it. If you make less, the lender may forgive any money you owe. However, the lender must report the amount to the IRS. The IRS considers the money you don't have to repay to be a gift or unearned income. You may have to pay taxes as if you earned it. Before you agree to a pre-foreclosure sale, talk to a tax advisor.
Deed in lieu (DIL): An agreement where you give the lender the deed and the keys and move out. In exchange, the lender agrees to forgive the loan. Lenders are not required to agree to a DIL and there are some legal reasons why it is sometimes not a good idea for them. If they do agree, however, the lender is required to report to the IRS the amount of money that you no longer have to pay. The IRS considers that to be income and will expect you to pay taxes on it. Again, seek tax advice prior to agreeing to a DIL.
Other things to consider:
Sometimes, borrowing money to bring your mortgage current is an option to preventing foreclosure. However, please read BORROWER BEWARE before you take on any new debt.
Sometimes tax refunds can be used to bring mortgage loans current. If you are expecting a refund, don't forget to mention it to your lender.
More information:
NHS of Richland County offers the following links for more information about this subject. NHS of Richland County is not responsible for content on any web sites not their own.
Freddie Mac Foreclosure Prevention Page
HUD Foreclosure Prevention Page
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