Searching for foreclosure alternatives

On Behalf of | Mar 1, 2022 | Foreclosure |

As foreclosure moratoriums expire and the economic recovery continues, people in Michigan and around the country may face an unpleasant surprise as they exit forbearance. In recognition of these challenges, the Consumer Financial Protection Bureau (CFPB) put in place special rules to allow borrowers more time to consider their options before a foreclosure proceeding begins. These measures are intended to:

  • Allow borrowers more time to find loss mitigation options.
  • Permit servicers to streamline loan modifications.
  • Require servicers to inform borrowers of their options before initiating foreclosures.

By discouraging foreclosure proceedings from moving forward, the CFPB is acting to minimize the effects of a flood of foreclosures that could both destabilize the housing market and drain wealth from the communities most affected by the economic downturn. As of last summer, around two million homeowners were still in forbearance, and 3% of those were at least four months behind in payments, which is when foreclosure proceedings may begin in Michigan.

Finding ways to avoid foreclosure

A foreclosure proceeding is the legal tool that a lender may use to repossess a home on which the borrower has missed payments. This procedure is costly to the banks, however, and so they are often open to negotiating alternatives, such as:

  • Mortgage modification, in which the borrower would refinance the debt or extend the length of the mortgage, allowing them to catch up by lowering the monthly payments.
  • Partial claim, which is a one-time payment using funds from FHA Insurance that would make the mortgage current.
  • Pre-foreclosure sale, which allows the borrower to sell the home for less than what is needed to pay off the mortgage loan.
  • Deed-in-lieu foreclosure, which basically returns the home to the lender.

All of these options will be less damaging to the borrower’s credit rating than a foreclosure. Whether they are appropriate in a given situation will depend on the amount owed, the financial means of the borrower, the condition of the home and other concerns. For Detroit metro-area residents, it is important to know what tools are available to them that will allow them to get back on their feet again in order to become more financially secure.