Reports early in 2011 stated that more servicers may begin offering deed in lieu and short sale plans to homeowners rather than pursue a formal foreclosure as these alternative plans are not only being considered by numerous homeowners, but there are some indications that they can be less costly to a servicer than a foreclosure. Obviously, homeowners who are in a position to benefit from a deed in lieu of foreclosure program or a short sale are either in a situation where they are unable to acquire foreclosure prevention assistance, like options from a modification, are in an underwater predicament where they owe a substantial more on their home than it’s worth, or in some cases homeowners are suffering from a combination of both and are looking for ways to escape their mortgage without foreclosure.
Homeowners who use a deed in lieu of foreclosure plan will be able to simply surrender the deed to their home, provided there are no encumbrances or other liens connected with the home, and homeowners looking to short sell their property have traditionally had to find a buyer and then seek approval from their servicer, but there are indications that servicers are being prompted to help homeowners find buyers for their property.
However, homeowners must be eligible for these programs and meet certain guidelines as, in some cases, there have been individual homeowners who have attempted to take advantage of one of these plans even when they could afford their mortgage payment or were not in a severe negative equity situation. According to the Making Home Affordable website some of the more common qualifications for these programs are, homeowners must live in their home or have lived in their property for 12 months, are able to document financial hardships that have led to their request for either a short sale or deed in lieu of foreclosure plan, homeowners cannot have purchased a new home within the last 12 months, and their mortgage must have been obtained on or before January 1, 2009.
Obviously, these programs can do a great deal for homeowners who have been struggling with factors like personal financial hardship, unemployment, or negative equity which has made it difficult for them to find refinancing options and affordability, but homeowners are being prompted to explore foreclosure prevention plans before turning to these foreclosure alternatives. Typically, homeowners must attempt to acquire a home loan modification before either of these plans will be an option, but homeowners may also take advantage of other Making Home Affordable programs, like the Principal Reduction Alternative or the Home Affordable Refinance Program, both of which may address issues in cases where homeowners are in an underwater mortgage.
Also, there is help for unemployed homeowners within the Making Home Affordable program, as both the Home Affordable Unemployment Program and the Hardest Hit Fund all are in place to address issues related to unemployment and a homeowner’s ability to make their mortgage payment. The Unemployment Program can offer homeowners either a reduced payment on their home loan, when a traditional modification may have been unavailable, but there are options for homeowners to receive forbearance on their mortgage payment for at least three months in the hopes of finding employment within this timeframe so that a homeowner can return to making payments are least qualify for a modification based on new income from a job.
Yet, if these plans are unhelpful, homeowners may find more options outside of simple foreclosures and, again, there are some indications that servicers are both being prompted to offer more short sales and there could be higher costs associated with foreclosures for some banks, which may lead to more foreclosure alternatives for troubled homeowners. Homeowners who are struggling, though, are being advised to contact their servicer early or consult a Making Home Affordable housing counselor in order to find solutions for their financial situation gets to a point where there are few options remaining to help.