Repayment Plan
A repayment plan distributes the homeowner’s delinquent payments over a period of time, usually no more than
10 months. The monthly amount is added to the usual mortgage payment. This brings the account up-to-date
within a specified time-frame. With a goal in sight, the owner can move forward knowing that the home is secure.
Forbearance Plan
An agreement to temporarily allow a homeowner to pay less than the actual amount due on their mortgage or it
will suspend payments entirely the forbearance period. More commonly associated with Fannie Mae, Freddie
Mac, FHA, and VA. Each has various requirements a homeowner must meet, it is very situation specific so the
homeowner should contact the lender directly to see if forbearance is an option. The goal is to put the homeowner
back on track to resume full regular payments.
Loan Modification
A loan modification applies any past-due interest and escrow amounts to the unpaid principal balance, which is
then re-amortized over a new term. Giving the owner a fresh start on managing their loan and brings the account
up-to-date immediately. There are many requirements; the homeowner must contact the servicing lender for
details of their individual circumstances.
Partial Claim (only for FHA loans)
The Department of Housing and Urban Development (HUD) advances a loan to repay the past due interest and
escrow amounts. HUD loan is interest-free and brings the account up-to-date immediately.
Short Sale
Allows the owner to sell the home and use the proceeds to pay off the mortgage if they are unable to maintain
payments, even if the home’s market value is less than the total amount owed. Avoids the lengthy legal process
involved in foreclosure. Generally, a short sale is less damaging to the credit rating than foreclosure.
FHA Pre-Foreclosure/Short Sale Requirements
The property is owner-occupied or reasonable circumstances exist if it is not, the loan is at least 2 months
delinquent and can sell within 3 to 5 months. A new appraisal (obtained by your lender) shows that the value of
your home meets HUD program guidelines. FHA does allow for short sales, contrary to some reports.
Deed In Lieu of Foreclosure
Allow the owner to transfer the property voluntarily to the servicing bank if the seller is unable to maintain
payments and cannot sell the home at market value. Avoids the lengthy legal process involved in foreclosure.
May be as damaging to the credit rating as foreclosure (this option is a foreclosure and will be reported as such).
How should the property be priced in a short sale?
In general, most short sale experts say to price the property at or near fair market value, although a few will begin
with the total payoff amount owned by the seller. How frequently prices are dropped will depend in part on
whether the property is in pre-foreclosure. Most banks have a formula for what percentage under market value
they will accept. Figures cited vary from 8 percent under to almost 20 percent under.
