The past year has left millions of Americans struggling to make ends meet. Unpaid bills and job losses have made it difficult for them to see a way out of mounting debts, especially for those facing wage garnishment, foreclosure or eviction.
Some people in Michigan who have been unable to make their monthly mortgage payments may see no other way preventing a foreclosure. It may be possible for them to negotiate new mortgage terms with the lender, however, allowing them to keep their home and preserve their credit.
Going into foreclosure
Sometimes it may seem like allowing the home to go into foreclosure is the best option. If the current market value of the home is lower than the principal owed, this is called an underwater mortgage. Those who have little or negative equity in their home may consider going into strategic default, in which the mortgagee allows the home to go into foreclosure by simply stopping payments.
Unfortunately, if the proceeds from the foreclosure sale are less than the outstanding balance on the mortgage, the lender can go after the delinquent homeowner through a deficiency judgement. Not only that, the foreclosure will remain on the mortgagee’s credit score years later, which can negatively influence their ability to obtain a future loan.
Loan modification options
Because foreclosures are costly for the banks, they are often open to discussing alternative solutions. If the mortgagee can qualify, a mortgage loan modification can be the best solutions for both sides. Different than a refinance, in a mortgage loan modification, the terms of the existing mortgage are changed rather than replaced, as would happen in a refinance.
Some possible loan modifications that the homeowner can discuss with the lender include:
- Going from an adjustable-rate to a fixed-rate loan
- Extending the terms of the loan
- Lowering the monthly principal payment
Loan forbearance, if granted, will also temporarily reduce mortgage payments. The terms of the modification, however, are up to the lender.
Although a mortgage loan modification can impact your credit score of the short term, you can rebuild your credit by building a record of consecutive payments over time, or revert to the original terms of the mortgage.
For residents of Birmingham and metropolitan Detroit, it can make a difference to have sound and effective legal counsel that will help them to find effective alternatives to foreclosure, allowing them to preserve their credit and keep their home.