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Allowing a mortgage default is costly to both you and your lender. Lenders have to liquidate a property after default, which means they will incur costs to prepare the home, list the home and close on a sale. Further, a home in foreclosure rarely sells for as much as its actual value. A lender would much rather you bring your loan current than enter foreclosure. As a result, you can approach your lender offering loss-mitigation tactics to help save your home and your credit score.
Loan Modification
If you act quickly enough, you can prevent a default before you get into a bad situation. For example, you may have lost your job. In this case, you are fairly certain you will have trouble making mortgage payments for an indefinite period of time. Instead of trying to scrape by without alarming your lender, consider letting your lender know of your hardship. You can write a hardship letter explaining the circumstances and asking for the chance to modify your loan.
Loan Deferral
For some borrowers, reducing monthly payments will not be enough to keep a loan from entering default. You may not have the resources at all to dedicate to paying a mortgage. This can occur if you experience a medical emergency that is taking all of your dedication. In this case, you may ask for a deferral on your mortgage payments. In a deferral, you will not have to make payments for a given period. The interest on your mortgage will still accrue, though, so you will end up owing more over time. For the best results, ask your lender about deferral options before you miss a payment .
Loan Settlement
You may be able to find a lender willing to lend you the sum remaining on your mortgage loan or a figure close to that sum. This can be a challenge, but some high-risk lenders will assist you. In this case, you can restore a loan out of default by negotiating a one-time payment with the lender. Any remaining debt will be forgiven, and you can begin paying the new lender alone. This option is costly because it is very high risk for the new lender. Only high-income borrowers are likely to receive a loan offer in this case.
Loan Forbearance
If you loan has already gone into default, you will need to work a little harder to recover. The only real option in this case is to seek forbearance on the loan. The lender will allow you to try to bring your loan current in a short period of time. The lender will not enforce the foreclosure during that period. Basically, you have to make all of your previously missed payments by the end of the forbearance period, or you will end up right back where you started. This option is best for a person who suddenly came into a new income source after previously nearing default on the loan. If you have any doubt whether you can bring the loan current, this option is very risky.
