|Chapter 2: Primary Options
Depending on the results of Steps 1, 2, & 3, there are many things the lenders can do to help you resolve the delinquency. The most common methods used to bring loans current are as follows:
Reinstatement (Cure): The easiest way to cure a delinquency is to pay the lender everything you owe. This includes missed payments, any late fees associated with these payments, and any other fees which the lender charges as a result of your delinquency. The reinstatement period varies from state to state.
Repayment Plan: This is a written agreement between you and the lender to help you make up missed payments. Generally these agreements require higher payments than the regular monthly mortgage amount for a short period of time, until the loan is brought up-to-date. You must not agree to a payment plan you cannot honor; but you must be willing to pay what you can realistically afford. If you fail to meet the terms of this agreement, you will probably receive no additional help from the lender.
Modification: A loan modification involves changing one or more terms of a mortgage. Modifications can be considered to reduce the interest rate of the mortgage, change the mortgage product (from an adjustable rate to a fixed rate, for example), extend the term of the mortgage or capitalize delinquent payments (add delinquent payments to the mortgage balance — only available in extreme hardship situations). Modifications are not easily granted and there must be strong, justifiable reasons for the request.
Forbearance Agreement: The lender will allow you a period of time (3 to 6 months generally) during which to make either lower payments or no payments at all. Unless the loan term is extended, later payments generally will have to be higher than the original monthly mortgage payments until the loan is up-to-date again.
Special Forbearance: (Applicable to FHA-insured loans only) The lender may allow partial payments for up to 18 months to allow the borrower to get back on track. The lender may also offer “partial claim”, or advance funds, to help you become current.
Refinance: This will usually not be an option if you are seriously delinquent on the current mortgage (more than 3 payments late). If you are current, however, and there is equity in the property, this might be an option.
Second Mortgage (Equity Loan): Possible even if you are seriously delinquent if there is enough equity in your home. Not generally feasible when you are having trouble making first mortgage payments - a higher interest rate and another payment would only be compounding the problem. May be used to eliminate consumer debt.
Bankruptcy: While this may seem to be the most unpleasant option, it may allow you to save the property. A Chapter 13 bankruptcy may help you save your home from foreclosure if all other options have failed. You will need to consult a bankruptcy attorney. Legal advice is always recommended prior to filing.