At-Risk of Foreclosure? Here’s How to Negotiate With Your Duluth Bank

Has it been months since you last paid your mortgage?  We understand how draining this can be, especially when you already see the risk of foreclosure. Even if you haven’t received a notice from your bank yet, you may already have to prepare yourself. But don’t be misled by this; preparing doesn’t mean getting emotionally ready to lose your home. Instead, it means setting yourself for action because there are plenty of ways to keep your home!

You’ve worked so hard to buy that home, or even if it’s inherited, you still spent time and money to maintain it. The last thing you might want to do is give up on it, so here are some deals that you can work out with your lender/bank:

Look for Private Money Lender and Ask Your Bank for Reinstatement

If the bank already sent out a reminder or warning about your delayed mortgage, you may want to look for a private money lender (PML) who can cover your unpaid mortgage. If you can pay the total amount you owe in a lump sum, the bank will most likely forgive your delays and reinstate your mortgage.

Yes, you will have to think about paying for two loans after, but that’s better than losing a relatively large asset.  Plus, private money lenders are known to offer lower interest rates and have more flexible payment plans. So hopefully, you will find one that best suits your situation.

guy researching for a private money lender

Apply for Short Refinancing

Short refinancing is when your bank grants you a completely different loan that is lower than your outstanding loan balance. Since your loan is lower, the bank will also receive lower interest. Most banks will consider short refinancing, especially when the foreclosure costs are too high. In other cases,  institutions just don’t want to go through the hassle of the entire foreclosure process, so they’d most likely extend their patience for you.

Ask for a Forbearance

Forbearance is an official postponement of your mortgage payments. If you have a valid reason for not paying your mortgage on time, the bank may grant you an extension without additional charge. Forbearance is just temporary, and the bank will be the one to set an expiration date for your agreement. Valid reasons for forbearance may include medical emergencies and the sudden loss of a job.

To convince the bank to grant you forbearance, you have to give them an exact date of when you’ll be able to continue paying. If you can provide proof that you have incoming money, the better. Proofs can include job offers, investments, incoming credits, and the like.  Again, banks are sometimes afraid of high foreclosure costs, so they will listen to your appeal. Likewise, granting forbearance is not a total loss for banks, especially if the mortgage is under a government-backed loan.

Forbearance backed by the FHA or Department of Veterans Affairs
Source: American Banker

Consider a Repayment Plan

A repayment plan involves resuming your regular payments plus a portion of your unpaid mortgage until you are caught up. For example, if your monthly mortgage is $960 and you failed to pay for three months, you can pay the total amount of $2,880 in installments on top of the regular monthly mortgage. If the bank gives you six months to pay the $2,880, then you’ll have to pay them a total of $1,410/month for the next six months. 

The bank will be the one to set the terms of your installment, and although your new monthly mortgage is higher, just remember that it’s temporary. You may have to keep all your other personal expenses at bay, but at least you get to keep your house without additional penalties.

Request to Modify Your Loan

A loan modification is the process of changing your current loan terms. The bank can lower the interest rate, extend your repayment period, or transfer you to a different kind of loan. Loan modification is typically granted to borrowers who cannot pay the current mortgage but is guaranteed to pay the modified one. When you ask the bank to realign your loan, you’ll have to ensure that you still have the financial means to pay them, just at a lower price. 

Once you file your request, the bank will most likely conduct a credit inspection again and other background checks of your most recent transactions.  If you have a credit card and you’ve been paying your dues on that without fail, even if you’ve stopped paying your mortgage, that may convince the bank to approve your request for modification.

Ask Help From Your Bank to File a Partial Claim

If your mortgage is under an FHA Loan, your bank is qualified for a partial claim. A partial claim is a one-time payment taken from the FHA Insurance Fund, and it can cover your unpaid mortgage. If you go with this option, the bank will give you an interest-free subordinate mortgage, which you’ll have to start paying after you completely pay the first mortgage.

Supposing you failed to pay a total of $2,880 and you still have 10 years left in your repayment period, the subordinate mortgage will allow you to worry about that $2,880 after 10 years. Banks will usually agree to file for a partial claim because it’s a win-win situation.

coming into terms with your banker

If any of these options will not work with your bank and your house continues to be at risk of foreclosure, you might want to explore selling it at this point. You may lose your house, but you don’t have to lose all the money in it. Remember that the property is an asset, and it should give you equity over time. We can provide you with options on how to sell your house, and if you are interested, don’t hesitate to call us at (678) 318 – 1801 or fill-up the form below.

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