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Posted: 3:03 p.m. Tuesday, Oct. 26, 2010

Can a loan modification help me stop foreclosure?



The most commonly used methods to stop foreclosure include the following:

Request a Loan Modification: This is a permanent restructuring of the current loan which places delinquent payments at the back end of the loan, extends the number of years, most of the time lowers the interest rate and consequently lowers the monthly payment. Modifications bring your loan current. Eligibility for Modifications and Outcomes depend on the type of loan and your ability to posture your numbers to meet the formulas required for your loan type.

Request a Partial Payment Forbearance:  This is a temporary solution which is generally offered for temporary financial losses associated with illness (time off work and medical bills), death in the family (time off work and funeral expenses), temporary cut in pay (mandatory leave of absence, for instance). Depending on the Servicer, the Borrower may be able to use reduction in income or loss of income, but that varies by Servicer. A Partial Payment Forbearance allows lower payments (sometimes one-half the current payment) for a limited time but the borrower must posture to sell property, request a loan modification, or pay the past due debt as a permanent solution.

Submit an offer for your property with correct hardship documentation and then confirming receipt of the documentation by your servicer prior to the foreclosure date is another way to stop foreclosure. Please note: You can sell your property if the value is below the mortgage balance. While it is not recommended to wait until the last minute, sale of property can occur in a matter of days if the price is right.

Ask for a deed-in-lieu of foreclosure. This is a situation in which a borrower conveys, or deeds, the property back to the Lender to satisfy a loan that is in default in order to avoid foreclosure. First of all, there is no guarantee that the Lender will accept a deed in lieu of foreclosure. Secondly, deed in lieu of foreclosure can be as damaging to credit scores as foreclosure is. Scores can drop 200 to 300 points, depending on the overall condition of your credit.