Whether you’re about to have your house sold at auction, or you’ve just missed your first payment, you still have options! In fact, even if you’re still making your payments on time, but feel that in the near future, you won’t be able to keep up, it’s time to act! As any financial expert will tell you, ‚prior planning prevents poor performance.‘ I can personally tell you, as President and C.E.O. of the leading loss mitigation company, Option Next, at our company, we believe that the only way you can possibly decide what to do, is by knowing your options…
This article will go through each of the best available options, and will explain the advantages and drawbacks of each one, along with tips on how to avoid getting scammed.
What Are Your Options?
1. Refinance – If you’re facing hardship because of the terms of your current mortgage, such as an adjustable rate mortgage which has started adjusting out of control, you may still be able to refinance into a fixed-rate loan. This option may not be available if you’re already far behind on your mortgage, or if your credit history is severely damaged. This is something that a qualified loss mitigation company can inquire about on your behalf. They should be able to give you a clear answer as to whether this is possible without charging you any fees. There are of course fees if you pursue the refinancing, but anyone who charges you a processing fee just to find out if it’s possible is looking to cash in on your misfortune…
Refinancing Advantages: No damage to your credit, you stay in your home and work out a payment you can afford.
Refinancing Disadvantages: Not available if your credit is severely damaged, only works if you owe less than the property is worth, the monthly payments will still be somewhat high, as you are refinancing your entire mortgage balance plus new closing costs.
Summary: Refinancing is most effective if your mortgage has an adjustable rate, and either has yet to adjust, or has just adjusted, and you are no more than 30 days late. If you don’t owe more than the property is worth, have reasonable credit, and would want to keep your property, refinancing is the best approach.
2. Loan Modification – If the hardship you’re facing is temporary; if you feel that you can reasonably continue to assume your current mortgage if only some adjustments were made, such as deferring your past due amount to the end of the loan or reducing the payment for the next few months, then it’s possible that a good loss mitigator can negotiate a solution with your bank. Banks do not want to foreclose on your property. They would rather take your money than your land. They are poorly equipped to manage ownership of real estate, and would rather find a way to salvage the loan. A qualified loan mitigation company may be able to work out an agreement that works for both you and your bank.
Loan Modification Advantages: No damage to your credit, you stay in your home and work out a payment you can afford.
Loan Modification Disadvantages: May not be available if your credit is severely damaged. Monthly payments will still be reasonably high as you are keeping your entire mortgage balance plus default amount. Also, loss mitigation companies generally charge a pretty hefty fee for this service, sometimes as much as $5,000 or more.
Summary: Loan Modification is most effective if your mortgage has an adjustable rate, or if you’ve fallen behind in such a way where you would normally be able to make your monthly mortgage payment, but just can’t keep up with the late fees and penalties. In most cases, it is only the late fees, penalties and interest rate that the bank would be willing to negotiate. If you don’t think that you’d be able to afford the mortgage at its current principal balance, even if the interest rate were reduced and the late charges removed, then a loan modification would not be a good option for you, and some fly-by-night loan mitigator may end up taking you for a ride.
3. Sell Your House – If the amount you owe on your property is less than or equal to the current market value of your property, you can always sell your house and pay off the mortgage in one lump sum. However, in today’s real estate market, that’s rarely the case. Most people in mortgage trouble today are faced with the problem of owing more on their property than it’s worth. If you are in a position to sell your home and pay off the mortgage in full, then you don’t need a loss mitigator and should simply contact your local Realtor…
Selling Advantages: No damage to your credit, your mortgage is paid off in full and you walk away..
Selling Disadvantages: Not an option if you owe more than the property is worth. You give up the house and lose any remaining equity to closing costs and broker commissions.
Summary: The traditional sale option is not available to most homeowners in today’s marketplace, as most owe more on their houses than they are worth in today’s market… If you are in a position where you owe less than the property is worth; If you’re willing to walk away from the property, this is a great option to preserve your credit…
4. Short-Refi – If your property is worth less than what you owe on it and you want to keep it, a short-refi may be the best solution. In a short-refi situation, the bank agrees to take less than what you owe on the property, in exchange for an immediate payoff and closing. At the same time, another bank agrees to refinance your property, at a significantly smaller amount. At this lower payoff amount, you are then able to have a mortgage you can afford. This option may not be available to you if you are severely past due on your mortgage or have severely damaged credit.
Short-Refi Advantages: Minimal damage to your credit, the entire debt is wiped away, and the banks will not go after you for the difference. There will be no foreclosure or bankruptcy on your record and a legitimate loss mitigation company should mitigate your short-refi with all fees worked into your new loan, meaning no immediate out-of-pocket expenses…
Short-Refi Disadvantages: You suffer a slight black mark on your credit, the process is lengthy and somewhat complex, and if your credit isn’t good enough to qualify you for the refinancing, this option goes out the window. A bad loss mitigator can cause a short-refi negotiation to fall apart.
Summary: Short-refis are most effective if you owe more than the property is worth, are facing financial hardship and are or will soon be unable to afford your mortgage, and you have minimal or no liquid assets and want to keep your house.
5. Short-Sell – If you’re in that ever-growing category of homeowners who owe more on their property than it’s worth, and you’d like to sell your property, a short-sale may be right for you. In a short-sale situation, the bank agrees to take less than what you owe on the property in exchange for an immediate sale and a payoff at closing. You, the homeowner, end up walking away having settled your entire mortgage for whatever the property could sell for. The banks will report this on your credit history as ‚Settled For Less Than Owed.‘ This is a negative mark on your credit score, but is nothing close to a bankruptcy or foreclosure. A short-sale, more than any other option, requires a highly competent loss mitigation company. See below for tips on how to make sure the company you pick is experienced and legitimate.
Short-Sale Advantages: Minimal damage to your credit, the entire debt is wiped away and banks will not go after you for the difference. There will be no foreclosure or bankruptcy on your record. A legitimate loss mitigation company should mitigate your short sale at no cost to you.
Short-Sale Disadvantages: You give up your house and suffer a slight black mark on your credit. The process is lengthy and somewhat complex, and a bad loss mitigator can cause it to fall apart.
Summary: Short-sales are most effective if you owe more than the property is worth, are facing financial hardship and are or will soon become unable to afford your mortgage; If you have little or no liquid assets, and are willing to sell your home.
6. Deed in Lieu of Foreclosure – This is the last resort when facing foreclosure. It means simply giving away the deed to the bank in exchange for them not pursuing a foreclosure action against you. This does significant damage to your credit score, but is still better than a foreclosure.
Deed-In-Lieu Advantages: No foreclosure on your record, and the bank will not pursue you for the remaining balance.
Deed-In-Lieu Disadvantages: You give up your house and suffer a significant black mark on your credit. It’s only available if you haven’t been able to find a buyer for over six months, and if your sale date hasn’t been set yet.
Summary: Short-sales are most effective if you owe more than the property is worth, are facing financial hardship and are or will soon become unable to afford your mortgage, and if you have little or no liquid assets.
7. Bankruptcy – This is the final alternative to foreclosure. This can be a costly process, and depending on the laws of your state may or may not be particularly helpful.
Bankruptcy Advantages: Buys you some time to come up with better options, and allows the bankruptcy trustee to act as a loss mitigator on your behalf.
Bankruptcy Disadvantages: Suffer a significant black mark on your credit. On its own, it does not provide a permanent solution, and when done properly, results in huge fees to a lawyer and a referee. The results of improper foreclosure filings are too disastrous to even discuss…
Summary: Bankruptcy is a last resort, and is often too expensive for people in financial hardship to afford. A sloppy bankruptcy filing does nothing but waste your time and money, ruin what’s left of your credit, and will often prevent you from exploring the better options most likely available to you. Never pursue a bankruptcy without speaking to a well-qualified attorney!
Who’s Your Mitigator?
A good loss mitigation company should be staffed with professional mitigators, whose sole job is to negotiate with the banks and to reach a solution that works for everyone. These experts can help you out of a terrible situation by finding a compromise that both you and the bank can live with. Keep in mind that since there is no standard certification or degree for loss mitigation, many companies claiming to be staffed by experts are really staffed by people they hired this morning. A qualified mitigator can make the difference between having your modification approved quickly, or having it drag out and foreclose.
Some signs of a low quality mitigation company? One that advertises on its website that you can become a loss mitigation specialist for them just by completing some quick certification course, or by just paying them a fee… They charge you a large fee, and give you a website and title. You then watch one of their videos and take an online test. Now you’re qualified to be responsible for people’s financial well-being. Personally, I find that outrageous! By signing up with them, you can rest assured that your file is being handled by someone with no experience, education, or office support. There are many such companies, so do your research! Be especially wary of any company that wants an upfront fee. If they’re promising a money back guarantee, offer to pay them once you’re satisfied, or at least to pay through attorney escrow. Remember, if you give away your last dime, will you really be able to pursue getting it back? If their website is based on a template and they haven’t bothered to finish building it, you should wonder if they’ll ever bring your mitigation to completion. Another bad sign is if the loss mitigation company can’t be bothered to respect your privacy. Some companies out there will list the address of your property on a publicly accessible website, where your friends and neighbors will be able to find it and see that you’re in financial distress. One company that I’m aware of claims to be a leader in short sales and yet uses this unsavory practice. Not only is this a blatant attack on your privacy, but it can result in hundreds of other companies getting your address off of their website, and then having telemarketers and door-to-door salesmen harass you every day and night… A good loss mitigation company will keep your financial situation strictly confidential, and will not turn your misfortune into bragging rights!
Some signs of a good mitigation company? Well, there could be many. Personally, I believe in education, expertise, owners and managers who are themselves experts in what they do, and not just investors looking to cash in, a website that is informative and fully functional, a web-based live tracking system which will let you see what’s going on with your file, a simple submission process and an easy to understand document packet. On top of that, quick responses to your inquiries are also quite important. At our company, all mitigations are headed by our general counsel’s office, where all documents, proposals and submissions are reviewed by a licensed and experienced attorney, not just a processor working out of his or her home… All of our mitigators have a minimum of a doctorate in law or at least 5 years of loss mitigation experience. A test question I would suggest is this: ‚Can you tell me what an order to show cause is, and how I can file one to stop my foreclosure sale?‘ Their answer should be something to the effect of ‚It’s a short-term order granted by a judge, which prevents the foreclosure sale for a very limited time, so that a more permanent solution can be worked out with the courts. You can pursue this in one of only two ways: through an attorney, or by going to court yourself as a pro-se litigant.‘ If they don’t know this answer, they are not experienced. If they tell you they can do one themselves, unless they’re a law firm in your own state, they are lying! My best tip for selecting a mitigation company? When you call, ask them to fax or e-mail you the résumé of the mitigator who would be assigned to your file. See what they respond with… Remember, you’re hiring someone to represent you in what could be the most important negotiation of your life, don’t just pick the first company to appear in Google!
No matter what your situation, you must remember that you still have options. Having experienced loss mitigators on your side, working to secure a solution that works for you, is the most valuable asset you can have. At my company, Option Next, we provide all of our potential clients with a free consultation with one of our foreclosure experts, who will discuss the various options that could work for you, and which one is best in your particular case. This is not to say that we are the only good loss mitigation company out there. I’m sure there are others. Just beware of the bad, and be careful when making your choices. If you have any further questions, feel free to send me an e-mail. I try to respond to all requests and make it a point to help direct homeowners in distress to someone capable of helping them.
by Alexander Paykin, J.D.