A seller facing foreclosure would probably be considering various options for avoiding it. Investing in Foreclosure homes is a great deal! For a mutually beneficial and intelligent negotiation, it is important that all options are known and understood by all parties in the negotiation.
Cure a loan or loan reinstatement: Loan reinstatement is when a buyer is to pay off the total amount due on the property directly to the lender in one go and ‘cure’ the loan. The payment would include everything from interest to legal fees, missed payment(s), late fees foreclosure fees etc. To prevent foreclosure, the borrower deeds the property to the buyer subject to loans existing on the property. Once the ‘deeding’ is complete, the seller loses his right and hold on the property. This can be a dangerous situation as the lender may accelerate the loan and in the event that the buyer does not clear the payment due on the property, the seller faces recovery action by the lender and also loses his title to the property.
Modification of loan terms: The borrower may get one or more of the original terms under which the loan was granted modified to help prevent foreclosure. The modifications can relate to a reduction in interest rates, change the nature of the mortgage; e.g. to a fixed rate mortgage from a variable rate one, an extension of the loan period or capitalization of the default amount. These modifications are very difficult to obtain and are never allowed by the lender unless extremely strong and justifiable reasons exist.
Forbearance: In forbearance, a lender allows a borrower to skip payment of installments for a period generally extending from three to six months. The monthly payments after the forbearance are enhanced to cover up for the payments not made during the period of forbearance.
Special forbearance: This option is available only to homeowners who obtain an FHA (Federal Housing Administration) loan. Special forbearance lets a borrower postpone monthly loan payments for not less than four months with no maximum time limit prescribed. However, the maximum amount for which special forbearance is allowed cannot exceed an amount equal to twelve months PITI i.e. principal/interest/tax/insurance.
Deed in lieu of foreclosure: When a borrower is unable to make repayments on a home loan that is heading for foreclosure, he may negotiate with the lender to execute a Deed in lieu of foreclosure. This will release the borrower from the financial obligations of the mortgage loan. Through the deed, foreclosure will be avoided and all the rights and title with respect to the mortgaged property will be transferred to the lender. It is necessary that both lender and borrower enter into such an agreement voluntarily. Lenders usually do not prefer to go this way as it saddles them with real estate to be sold in the market to regain the amount loaned. Financially sound borrowers may not be allowed to take recourse to such an option.
Cash for keys program: The lender may decide to pay a difference in the market value of the property and the loan amount under Cash for keys program. The borrower peacefully hands over vacant possession of the property in good repair and in a broom-clean condition.