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Short Sale Or Foreclosure, What You Need To Know
Is It Better To Short Sale or Foreclose On Your Cape Cod Property?
Whether you have fallen behind on your mortgage payments, are attempting to negotiate a loan modification with your lender or contemplating a strategic default, the ultimate goal should be to find a solution other than foreclosure.
In most instances, Servicers and Lenders do not want to foreclose on delinquent borrowers as the first option due to the amount of time and money that they may potentially lose going through the legal process and eventually getting the property re-sold.
The Difference Between Short Sale vs. Foreclosure
Depending on your particular situation and hardship circumstances, here are a few potential options your lender might propose to prevent foreclosure, provided you opened the lines of communication early in the process.
Forbearance:
Time off from making current payments, or from catching up on past due balances. Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you.
Forgiving a Payment:
If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens.
Repayment Plan:
Spread out the missed payments over a longer term. For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan.
Loan Modification:
A Loan Modification is basically changing the terms of your loan. If your mortgage is an adjustable rate loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period.
Refinance:
If you have sufficient equity and meet the lender’s lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan. However, if you do not have equity and your mortgage is “underwater” due to a drop in value, there is a possibility for a government loan option called the Home Affordable Refinance Program (HARP), provided you are not currently behind on your mortgage.
Partial Claim:
Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim.
