Understanding Mortgage Workout Plans

If you are or anticipate having trouble making your mortgage payments, contacting your lender should be your top priority. By doing so, you take an important step towards avoiding foreclosure. Depending on your situation and your payment history, your lender may be willing to negotiate with you a mortgage workout plan.

The plan your lender offers will usually depend on several factors. That’s why it’s extremely important to be honest in your presentation of the problem. One factor that’s indisputable is the amount by which your loan is in default. The lender need only look at your payment history to verify the answer. The lender also wants to know whether your financial situation is short-term or expected to last a while. Your ability to secure funding to address the default is also considered as is your property’s current value.

The mortgage workout plan you and your lender negotiate will spell out the loan repayment plan as well as repayment deadlines. Therefore you definitely want to get the details of whatever is negotiated in writing. If you don’t adhere to the negotiated terms, there’s a good chance your home will end up in foreclosure.

Temporary Indulgence

A temporary indulgency is commonly granted when the situation that caused the default is expected to be remedied in one to two months. Lenders will negotiate this when it’s easy to nail down a date by which the default will be resolved. One of the most common reasons for offering this is when a home sells but has not settled. Another is a pending insurance settlement. Before granting a temporary indulgence, you’ll need to provide the lender with proof of the situation you’re claiming such as a purchase and sale agreement.

Repayment Plan

This commonly used workout plan is what it sounds like: a negotiated plan to repay the amount in default. It’s offered when a borrower can show proof that his or her temporary loss of income no longer exists and that income is back to where it used to be. Under this type of plan, the borrower resumes making normal monthly mortgage payments. Plus, the borrower must also pay an additional amount within a certain time frame. The additional amount is used to repay the default amount. Borrowers typically get from one to two years to bring the default current, and will either make monthly payments or one lump payment on a pre-negotiated date.

Forbearance Plan

If your situation is such that you’re unable to make mortgage payments for the foreseeable future, your lender may negotiate a forbearance plan. Note however that this is only offered to borrowers who have a proven track record with the lender. Under this plan, your payments will either be reduced or suspended for a period of time, usually up to 18 months. The lender will define the terms of the forbearance plan in writing, including the foreclosure process should you not adhere to the negotiated terms.

While all of these are options you can pursue in your efforts to avoid foreclosure, they are in no way meant as a substitute for responsible fiscal management. Lenders don’t want to foreclose on your home. If you’ve got a good payment history, they’ll work with you to help you overcome a temporary hardship. If not, they likely won’t be interested in helping.