Rent or sell the property
If your client’s property is in a desirable area they can try to sell it quickly or find a roommate or tenant to help pay the mortgage. Consider area vacancy rates to determine what your clients can expect to collect in monthly rental, and be sure to assess the potential re-sale value.
Lenders want homeowners to pay their mortgages; the foreclosure process is time consuming and costly so lenders also have a vested interested in helping your client through their financial crisis. There may be an opportunity to re-negotiate the mortgage over a longer period of time or at a lower interest rate, or for your client to pay a smaller monthly amount for a short period if they’ve had employment difficulties.
In some cases, the foreclosure process might even be stopped by a generous lender when back payments, interest and legal charges are re-paid in full by the homeowner. There are many repayment scenarios and this is why it is so important for your clients to speak with their lender early about their financial problems. They won’t make their situation any better by avoiding the phone calls and emails from the bank when their mortgage goes unpaid month after month. Drawing up a repayment plan with your clients is also a good idea so they can formally present their lender with some ideas for reimbursement options that will be affordable in the future.
Friendly foreclosure or a deed-in-lieu
A friendly foreclosure basically means your clients hands back the keys to the property without the bank or mortgage lender having to go to court to force them. The advantage for the homeowner is that they will be immediately released by the lender from the loan and from incurring additional mortgage payments, surcharges and assorted legal fees. Also the friendly foreclosure is considered a mortgage default which is less disastrous to your credit rating than a forced foreclosure.
This is really a last resort option and doesn't end a foreclosure process but might slow it down. In some cases, a home can fall under the bankruptcy exemption rule which means the court will protect the asset from being sold and allow the bankrupted individual to remain living there. Remember, your client will want independent legal and financial advice before filing for bankruptcy protection.
It is important to help your clients before their financial problems get worse. If they find themselves late on a mortgage payment, suggest they talk to their lender immediately about working out a repayment plan. The bank doesn’t want to take your client’s home away, but they do want the money your clients promised to pay them – with interest – when they bought the property to begin with.