Michigan is seeing record numbers of mortgage foreclosures. Many people are finding themselves trapped in house that has decreased in value below the payoff balance on their loan. The following are some alternatives that may be available to you, with the assistance of an attorney.
This is a temporary reduction in monthly mortgage installment payments. It is effective for a transition period, such as listing of the property for sale or short-term unemployment. The application is processed by a lender’s loss mitigation department. It is not a long term solution.
Loan modification may be available to you under the Home Affordable Modification Program (HAMP), Michigan's Save the Dream Program, or other programs. The process is initiated through mortgage company’s loss mitigation or home retention department. Beware of predatory practices by so-called experts who are not attorneys. Also, be careful in that financial statements you share with your mortgage company can become “treasure maps” for creditors to collect later if the modification is not approved.
This is sale of the property for less than the total payoff balance owed. It typically requires an MLS listing with a private realtor for at least 3 months. Often it requires an appraisal. The slow short sale approval process can scare away prospective buyers. Your mortgage company will require financial statements from you and may not approve the sale if it does not find you financial situation to be a "hardship." A short sale does not automatically resolve liability for a deficiency, so you still can be sued on your remaining loan balance after the sale.
Deed in Lieu of Foreclosure
This optionis less damaging to your credit than foreclosure. Bu it is ONLY available to borrowers with one mortgage (N/A if there is an equity loan). The deed must be signed by all co-owners. This sort of agreement is completely voluntary and can be rejected by bank. Finally, it does not discharge liability on your promissory note for any deficiency balance owed.