What Are The Solutions For Mortgage Delinquency?
The consequences ofmortgage defaultinclude late fees, credit score damage and foreclosure. To help avoid these outcomes, consider the following solutions for mortgage debt relief.
Modify The Loan
A servicer may offer tomodify a borrower’s mortgage termsto get them back on track with their monthly payments. They may adjust the mortgage’s remaining principal balance,interest rateor loan term.
A servicer may also offer a borrower with anadjustable-rate mortgage (ARM) a fixed-rate mortgage so they have a stable monthly payment.
Ask ForForbearance
Forbearanceis a temporary agreement to pause or lower a homeowner’s mortgage payments. Typically, forbearance is better suited for financial emergencies resulting from short-term hardships, such as divorce, sickness or loss of income.
Compared to foreclosure, forbearance is a preferable alternative that lets you keep your home. But while it offers a temporary financial lifeline, it doesn’t erase your debt. Borrowers must repay missed or reduced payments according to the timeline set by their lender.
List The Home As A Short Sale
A short sale happens when a homeowner is approved to sell their home for less than the amount they owe on the mortgage. The sale proceeds go to the lender. The lender will either forgive the difference between the sale price and the outstanding mortgage balance or obtain a deficiency judgment, a legal ruling that requires a borrower to pay the outstanding balance after a sale. Some states may require borrowers to pay the outstanding mortgage balance by default.
While you’ll lose your home with a short sale, the damage to your finances, credit history and score shouldn’t be as severe as foreclosure.
Sign A Deed In Lieu OfForeclosure
Foreclosure is a legal process that gives lenders the right to recoup their growing losses by selling a home they’ve repossessed. As you might imagine, this is the most severe consequence of ongoing mortgage delinquency. It’s an outcome that lenders prefer to avoid considering the time and expense.
That said, homeowners can opt to use adeed in lieu of foreclosureas a last resort This is an arrangement where a borrower signs over the deed to the property to their lender in exchange for preventing or stopping the foreclosure process.
If you use a deed in lieu of foreclosure, you give up ownership of the home and will likely still experience some negative effects to your credit score, but the impact won’t be as harsh as going through the complete foreclosure process. If you’re unable to modify your loan, qualify for forbearance or short sell your home, this option might be the best way to preserve your financial situation after defaulting on your mortgage.
