Denied for a Loan Modification? Understand your Options
Today, an estimated 20% of all homeowners are upside down on their
mortgages. An increasing number of homeowners are finding themselves in
a situation where they must consider foreclosure as a possible option.
Rather than give up their home, some homeowners have opted to try to
refinance their mortgage loans instead (get custom refinancing rate quotes from
Others have made the decision to
seek a loan modification. Even so, there are still many homeowners who
are not able to take advantage of a refinance or loan modification and as a
result, lose their homes.
One of the main reasons that many homeowners are not able to take
advantage of a refinance is because they do not have enough equity in
their homes. Other homeowners simply will not be able to qualify for a
loan modification program.
In situations such as these, it is important to understand other options
that are available. One possible solution is selling the home. Provided
that you have enough equity in the home, you may be able to pay off the
home in full after deducting real estate commissions. A quick sale can
be a good option in such situations because it allows the homeowner to
preserve whatever remains of their credit score and equity in the home.
As a result, they can leave the home in a much better position than if
they left it to a foreclosure, which can be an advantage if they want to
purchase another home later.
Another option to consider is a deed in lieu of foreclosure (Read:
What other alternatives to foreclosure?). If you are
not able to sell the house for what is owed and you are not terribly
upside down, this could be a good solution. In this option, the
homeowner hands over the deed to the house and the lender agrees to
release the homeowner from the mortgage. The benefit of this option is
that it ensures the homeowner does not have to pay for any shortfall
that could be potentially owed on the home while the lender avoids
paying any legal costs associated with a foreclosure.
It should be kept in mind that a lender does not have to accept a deed.
In most cases, lenders will require the homeowner to make a strong
effort to sell the home prior their agreeing to accept a deed.
Furthermore, the homeowner must demonstrate their delinquency on the
mortgage occurred as a result of a hardship that could not be avoided.
When a lender does accept a deed in lieu of foreclosure, the homeowner's
obligation to the lender will end. Typically, a deed in lieu will not
result in any effect on the homeowner's credit score. On their credit
report, it will show paid as agreed. Any late payments prior to the deed
in lieu will continue to negatively affect the borrower's credit.
If a homeowner is considering exercising this option, they should
strongly consider working with a company that specializes in handling
such matters. While it is possible to handle a deed in lieu on your own,
a number of problems can occur if it is not handled properly. A real
estate loss mitigation company can assist homeowners in negotiating a
deed in lieu with their lender.
Another option would be to negotiate a
short sale. This occurs when the homeowner owes a substantial amount more on the mortgage than the home
is worth. In this case, it may be possible to convince the lender to
accept an amount that is less than what is owed. This is a short sale.
Basically, the owner sells the home for the best offer and the lender
accepts all proceeds, agreeing not to pursue the owners for the
Homeowners should know that a short sale can result in damage to their
credit score. A short sale will commonly show up as a settlement on
their credit report. In addition, they could owe money to the IRS as the
unpaid debt is considered to be income. When considering a short sale,
it is a good idea to work with an attorney who is experienced in
handling such transactions.
Finally, the homeowner may decide to proceed with foreclosure. This is
not the best choice as in some areas the lender may be able to legally
pursue the homeowner for any amount remaining between what is owed and
the amount the home eventually sells for. Prior to settling for
foreclosure, it is usually best to exercise every other option that is
available in order to obtain the best possible results.