Foreclosure can be a scary reality for many homeowners. Sometimes, defenses are available to stop the process. If defenses don’t apply or the homeowner doesn’t want to fight the bank there are many settlement options that may be available. Here are some of the most common:
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Reinstatement
If the homeowner has the funds to bring the loan current, a reinstatement is often a good option. It will place the homeowner back into the good graces of the bank and in some aspects acts as if the loan was never defaulted. This option is seldom used, however, because most people finding themselves in foreclosure do not have the funds to reinstate their loan.
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Payoff
Similar to reinstatement, a homeowner also has the option to payoff the remainder of the loan. This would essentially wipe away the mortgage altogether. Just as with reinstatements, however, homeowners rarely have the funds to choose this option.
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Loan Modification
One of the most common settlement options is a loan modification. Availability depends on what the bank offers as well as governmental programs,. If one can be offered, it will change the terms of your mortgage loan, thereby allowing you to begin making payments again. There are many potential options with loan modifications that may be available, such as extending the maturity date or a principal reduction. It is important to understand all the terms of a loan modification offer as some are less than ideal.
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Short Sale
A short sale may be offered by the bank in cases where the property is not worth what is owed on the loan. The bank understands that even if it successfully forecloses on the property, it might not resell the home for enough money to recoup its losses. In such situations, banks will often agree to allow the homeowner to list the property for sale and accept the proceeds of the sale in exchange for dismissing its foreclosure.
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Deed in Lieu of Foreclosure
Another option is a deed in lieu. If the bank offers this option, it will accept the transfer of the title of your property in exchange for dismissing its foreclosure.
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Short Payoff
Think of a short payoff as a combination of a payoff and a short sale. With this option, a bank is willing to accept a payoff amount less than the actual full amount necessary to payoff the loan. Some banks are more likely to offer this option than others.
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Consent to Judgment
With a Consent to Judgment, a homeowner essentially agrees to have a judgment of foreclosure entered against them, which will mean that the house will generally be sold in a foreclosure auction. The benefit of accepting such an offer is that the bank will usually offer some type of incentive or a combination of several, such as waiving its right to seek a deficiency (the difference between the amount owed and the amount the home sells for at the auction), cash for keys (paying the homeowner a set amount of money once title transfers and the home is vacated), and/or an extended sale date (extending the amount of time the homeowner may remain in the home prior to the auction taking place). With extended sale dates, banks will often still review loan modification applications if the borrower submits one.
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