Jumping through the hoops of your mortgage company's loan modification process is stressful when you believe you have few other options. It can be even more difficult when selling your house is not an attractive option due to falling real estate prices. If your mortgage company denies your loan modification application, however, you can explore other options depending on the nature of your payment delinquency.
Discuss Forbearance with Your Lender
A forbearance agreement is a formal arrangement between you and the lender that temporarily stops them from foreclosing on the house. Forbearance agreements only work in situations where the lender may be willing to make a long-term loan modification down the road or when the inability to make payments is temporary. For example, if you have been out of work because of an injury but you will be going back to work in a few months, a lender may enter into a forbearance agreement with you to lower or defer payments until you get back to work.
Talk To a Loan Modification Company
If you still wish to live in the house and pursue loan modification, there are companies that specialize in modification applications. There are federal programs available in some situations that may make the process easier for both you and the lender. Be sure to choose a company that does not charge anything until you have a successful loan modification agreement in hand and ensure that the charges are clear in the contract.
Increase Your Income
If working with your lender doesn't seem plausible, consider taking on another job or otherwise increasing your income for at least a while until you get back on your feet. This option is the most attractive in situations where you expect that your home's value will rebound in the next year or two but is currently depressed. It also is the best solution in areas where homes are not turning over and the real estate market is stagnant. Let your lender know that you will be increasing your income for the best chance of obtaining some breathing room.
A short sale on your home is often the least desirable option but is sometimes a necessary process. If you don't expect to be able to afford your mortgage payments in the foreseeable future and you cannot get help from your lender, selling the house may be the only option to avoid foreclosure and bankruptcy. A short sale means that you will sell the house for less than you owe on it. Your lender must agree to the short sale, because it will not be recouping all of the monies owed from the sale. A short sale does not automatically free you from the balance owed to the lender, so it is critical that an experienced lawyer is involved in the negotiations.
Angie Mohr is a syndicated finance columnist who has been writing professionally since 1987. She is the author of the bestselling "Numbers 101 for Small Business" books and "Piggy Banks to Paychecks: Helping Kids Understand the Value of a Dollar." She is a chartered accountant, certified management accountant and certified public accountant with a Bachelor of Arts in economics from Wilfrid Laurier University.