1. Do Nothing
While you may be tempted to just walk away, if you ignore the lender and do nothing, you can expect to be foreclosed on in as few as 21 days. Adding insult to the injury, there is no redemption period for mortgage foreclosures in Texas. Once foreclosed on, you will have to move out or you will be evicted with little or no hope of getting your home back.
In addition to losing your home, your credit will be devastated, and you will likely still owe money – either to the bank or the IRS. If the bank chooses to “forgive” your debt instead of suing you, you will receive a 1099 and you may owe the IRS taxes on this “free” money!
Doing nothing is not a good option in most cases as your credit will be destroyed and you will have to deal with a costly lawsuit or tax liability.
2. Catch Up Payment Plan
If you’ve only fallen behind a few payments and you now can make payments – but not completely reinstate - a payment plan may be your best option. Many lenders offer a repayment, workout or forbearance plan which requires the borrower to catch up with payments over a period of up to 18 months.
Repayment plans work if you had a short-term hardship and are now able to make regular plus catch-up payments.
3. File Bankruptcy
Many view bankruptcy as their only option to stop foreclosure. While bankruptcy will temporarily halt the sale, the temporary benefits may not be worth the damage it can cause. Unless you are overwhelmed with non-mortgage debt, in most cases there are better options that should strongly be considered.
Bankruptcy can be a good option if you are overwhelmed with debt, but isn’t the best option for most people facing foreclosure.
4. Loan Modification
If you experience a temporary hardship that has ended and you can begin making regular or reduced payments again (but not catch-up payments), a loan modification may be your best option. Given the complexity of the process and mountain of paperwork required, only 7% of all applicants are successful in obtaining the relief they seek.
Substantially better results are achieved with help from non-profits, law firms, or loss mitigation consultants that can help navigate the process. Unfortunately government-sponsored programs such as HAMP have been discontinued due to a reduction in need and overall ineffectiveness of the program.
Loan Modifications are a good option for those who fell behind and can’t catch-up but can afford to begin making payments again.
5. Dispose of House
If you can no longer afford your mortgage payments or just need to get out of your situation, disposing of the property may be your best option. If you have equity, seek out an investor to purchase via a quick sale, but make sure the transaction closes prior to the foreclosure auction or hire a foreclosure defense law firm to stop the foreclosure via a Temporary Restraining Order.
If you don’t have enough equity to sell your house and pay off the balance, you can seek either a Deed in Lieu of Foreclosure or a Short Sale. A Short Sale, or Pre-Foreclosure Sale, is one where the property is marketed by a REALTOR®, a competitive offer is submitted to the bank who agrees to accept a payoff that is less than what they are owed.
Typically, mortgage companies prefer a Short Sale as possession of the property passes directly to a new owner. For that reason, they usually require the house be on the market for a minimum of 90 days before they will consider a Deed in Lieu.
Disposing of your property is a good option when you have little or no equity and no ability or desire to pay the ongoing mortgage.