Mortgage Debt Options

You are not alone on this sinking ship. Therefore, there are mortgage debt options available on the horizon. With the 2022- 2023 recession, hundreds of thousands are now just starting to feel the economic crisis that has begun. However, there are choices, and you should consider them before deciding what to do.

You can:

• • File for bankruptcy

• • Foreclosure

• • Short-sale your home with a Realtor

• • Apply for a loan modification

• • Deed in Lieu

• • Sell to an investor

Bankruptcy 

has helped some consumers stay in their homes. For example, a Chapter 13 filing allows you to set up a repayment plan to pay off the past-due payments, but you will need sufficient income to pay both your past-due fees and your current mortgage payments simultaneously. So long as you make all of the required payments for the length of the repayment plan, you will avoid foreclosure and be able to stay in your home. However, this solution may be a consideration if you are buried deep in medical bills, credit card debt, or other financial obligations.

Foreclosure 

may be the least recommended option. You can stop making mortgage payments, but eventually, you will have to move out whether you are ready to move or not. For some, this is a chance to live payment-free for several months and put away some money for a deposit on a rental home IF YOU ARE LUCKY because the effect on your credit score is crucial.

In addition, you run the risk of a substantial financial obligation that will follow you for at least seven years and can lower your credit score by 100 points.    

Short Sale 

may be your best option if you have less equity than your home market value is worth. Of course, you will see a hit on your credit report, but at a substantially less blow than a foreclosure, you may also qualify to repurchase a home in as little as 3-5 years. The average short sale time frame typically takes 90 days to negotiate with the asset manager and mortgage lender before you sign the closing papers. 

Unfortunately, many real estate agents today are listing short-sale properties without knowing how to conduct that negotiation, and their sellers are paying the price for that lack of knowledge.

Success in a short sale relies on three primary areas of expertise: Pricing, Paperwork, and Persistence. Therefore, before you list with any agent, you need to know they are skilled in all three areas. Otherwise, you could end up in foreclosure despite your best efforts.

 

Loan modification

A loan modification may be your best mortgage debt option. Realtors in your local area can also recommend an experienced loan officer. A loan modification means your lender changes the interest rate on your loan to match current market rates and restructures new loan terms.

You may owe more on your home than it’s worth. In that case, your lender may be able to put the excess principal in a forbearance account which will allow them to temporarily pause or reduce your monthly payments for a specified amount of time.

Deed in lieu 

is a mortgage debt option to avoid foreclosure. This option allows you to hand over the deed to the lender. In return, the lender releases their lien obligation from you for the property. There are reasons a lender may decline a deed in lieu, such as the home value being below market value, the house being in poor condition, or additional liens on the property, such as unpaid property taxes. A deed in lieu will stay on your credit report for four years vs. seven years for a foreclosure.t