House & Apartment

"Loss mitigation" refers to options to avoid foreclosure. In some cases, it may mean that you keep your home. But loss mitigation may also mean that you agreed with the mortgage company to give up your home and avoid further liability on the loan. Having a plan for loss mitigation and working diligently with your mortgage company is extremely important to preventing foreclosure.

[no-lexicon]Mediation[/no-lexicon]

Some courts have created programs to help homeowners agree with their mortgage lender. Mediation is a process to help you and the mortgage company reach an agreement about the foreclosure. Mediation is run by a neutral person called a "mediator." Mediation can be very useful to work out a loss mitigation option.

Mediation is not available in every county, and each mediation program's rules are different. You should check with the circuit court in your county to determine if mediation is available. Here are some of the counties that have mortgage foreclosure mediation programs:

• Cook County
• Boone County
• Champaign County
• Grundy County
• Kane County
• Kankakee County
• Lake County
• LaSalle County
• Macon County
• Madison/Bond County
• McLean County
• Peoria County
• St. Claire County
• Will County
• Winnebago County

Loan modification

A loan modification changes the terms of your mortgage loan. The goal is to bring your loan current by making the monthly payments more affordable. Eligibility for a loan modification depends on many factors such as:

• Your income,
• Who the mortgage company is,
• When you got the loan, and
• What type of loan you have.

Ask your mortgage company or a HUD-certified housing counselor about how to apply for a loan modification. You should apply for a loan modification as early as possible if you are behind on payments or in foreclosure. Be sure to keep very detailed records of what information you send the mortgage company when applying for a modification.

Flex Modification ("Flex Mod")

You can qualify for Flex Modification ("Flex Mod") if Fannie Mae or Freddie Mac owns your loan. The Flex Mod is Fannie Mae and Freddie Mac's primary option to keep your home. 

You can find out if Fannie Mae or Freddie Mac owns your loan by using the tools listed below:

• Fannie Mae Loan Lookup
• Freddie Mac Loan Lookup

What does a Flex Mod do?

A Flex Mod changes the terms of your mortgage. It will result in a 480-month term. It may result in the following:

• A lower interest rate,
• Paying some principal back later ("forbearance"), and
• A reduction of your monthly payment.

Automatic review for a Flex Mod

Servicers must review you for a Flex Mod if you are between 90 and 105 days behind on payments. This review is not based on your application or income. Instead, this review is based on your property's value, current interest rate, and the amount you owe.

Applying for a Flex Mod

You can also apply to your servicer for a Flex Mod. To apply, you must be more than 60 days behind in your mortgage payments.  If you are less than 60 days late, you must show the servicer that something has happened that makes you unable to pay.

Flex Mods with prior modifications

You can receive a Flex Mod even if you modified your loan before. But not if you have modified your loan 3 or more times already. 

[no-lexicon]Trial period[/no-lexicon]

If you are approved for a Flex Mod, you must successfully complete a 3-month "trial period" before your loan will be permanently modified.  

More info on Flex Mods

To learn more about the Flex Mod rules, you can review the "fact sheets" issued by Fannie Mae or Freddie Mac:

• Fannie Mae Flex Modification Information
• Freddie Mac Flex Modification - Fact Sheet

Bankruptcy in foreclosure

There are certain times when a person can file bankruptcy to help solve their foreclosure problem. It is very important to understand how filing bankruptcy will effect your rights and make sure that it fits with your plan to deal with the foreclosure.

Filing a Chapter 7 bankruptcy will normally get rid of your liability for the mortgage loan. That does not prevent the mortgage company from taking your home if you have missed payments. A Chapter 7 bankruptcy discharge does, however, prevent or eliminate a "deficiency."  This is when you owe money to the bank after the home is sold.

Chapter 7 bankruptcy may also avoid a lien on your home. But, some debts (like IRS debt or student loans) usually cannot be discharged in Chapter 7 bankruptcy. If your home is worth more than you owe on the mortgage loan, you may lose your home by filing Chapter 7 bankruptcy.  

Learn more about Chapter 7 bankruptcy.

Chapter 13 bankruptcy is a type of repayment plan. In Chapter 13 bankruptcy, you must repay the missed mortgage payments within 60 months (5 years) while also making your current monthly mortgage payment. This option only works if you can afford it.

Learn more about Chapter 13 bankruptcy.

Repayment plan

A repayment plan helps you get caught up on your loan over time. The mortgage company will charge extra payments per month until you are no longer behind on your payments. It is possible that a mortgage company may not accept a repayment plan after a bankruptcy.

Forbearance

Forbearance may refer to a repayment plan. But a forbearance is usually an agreement between you and the mortgage company. You make lower payments, or no payments, for a certain period.

If you are in a forbearance period, there should be a written agreement that the lender will not proceed with foreclosure.  

While this can be a good option for short-term financial problems, it is usually not a good long-term solution. While you are in forbearance, the loan payments continue to build up. After the forbearance is over, the loan company may require you catch up an all the missed payments in one lump sum payment.

Forbearance relief during Covid-19

There are two Covid-19 forbearance relief options for homeowners. Forbearance allows you to pause or reduce your mortgage payments. 
 
The Federal Housing Administration (FHA) is providing up to 6 months of:

• Covid-19 forbearance for borrowers struggling with mortgage payments because of the pandemic, and  
• Home Equity Conversion Mortgages (HECM) extension for senior homeowners. 

 
This must be your initial request. It must be made between October 1, 2021, and the end of the pandemic.
 
The forbearance and extension period may extend 6 months after the end of the pandemic or September 30, 2022, whichever is later. 
 
If you are behind on mortgage payments or having a hard time with your HECM, contact your mortgage servicer. 
 
If you received an initial CARES Act forbearance, you may be granted up to 2 additional 3-month extensions. You must have filed an initial forbearance plan on or before June 30, 2020. 
 
The lender must waive late charges, fees, and penalties during a Covid-19 forbearance or extension period. 
 
Find a HUD-certified housing counselor for free housing advice. Call (800) 569-4287. Find more resources for homeowners on the Consumer Finance Protection Bureau website. 
 
To learn how to request mortgage relief, visit HUD’s Covid-19 Resources for Homeowners. 

Reinstatement

Reinstatement means getting caught up on all of the missed payments and bringing the loan back into good standing. To reinstate, you must pay all missed monthly payments, plus any other fees and costs.

Illinois statutes allow you to reinstate within 90 days after you receive a summons and complaint. However, banks often let borrowers reinstate after the 90 days have elapsed. If the court rules that you have used the right to reinstate, you do not have the right to do it again for five years.

Redemption

Redemption is paying off the whole loan. You have the right to do this within seven months of getting a complaint and summons, or 3 months after the date the judgment of foreclosure is entered, whichever is later.

The time allowed for redeeming can be shortened sometimes. Most commonly, the redemption period may be reduced if the property is abandoned.

Redemption usually happens when the house is sold or when the property is refinanced.

Refinance

You can refinance the loan if you have enough equity in your home. Equity is the amount of money you've already paid on your mortgage.

However, refinancing when you are in foreclosure is difficult because of the damage to your credit that has occurred. You may also have to pay a high-interest rate and high loan charges.

You are likely to get many offers to refinance and save the home. You should be very careful about refinancing. Homeowners often end up losing the house after paying even more money to refinance. Homeowners may also be the target of refinancing scams.  

Reverse mortgage

A reverse mortgage is a loan for seniors over the age of 62. A reverse mortgage is a type of home equity loan that allows a homeowner to convert their equity into cash with no monthly mortgage payments. This option may make sense for certain borrowers who qualify. But it is important to understand exactly how the process works and all of the terms that need to be complied with.

Home sale/short-sale

You can sell your home at any time before the redemption period ends.

If you sell the home for more than you owe, you will keep the profit. However, if you sell the home for an amount less than what you owe, the lender must agree. This is called a short-sale.

In a short-sale, the mortgage company may agree to take the money from the sale of your home as full payment for the loan even though you owed more money than that. When working on a short sale, it is important to find a real estate agent to help you.

A short sale may also have income tax consequences. You should work with a qualified realtor, attorney, and tax professional to help understand how this works and to make sure you are making the right decision.

[no-lexicon]Deed-in-lieu of foreclosure[/no-lexicon]

In a deed-in-lieu of (or "instead of") foreclosure, you voluntarily give your home to the mortgage company. In return, the mortgage company lets you out of liability for the mortgage loan.

If the mortgage company agrees and accepts this option, you do lose the house, but you should not owe any more money.  

A deed-in-lieu agreement must release you from the home loan unless you agree otherwise.  

Make sure to get a deed-in-lieu agreement in writing. A deed-in-lieu may have income tax consequences. You should work with a qualified attorney and tax professional.

[no-lexicon]Consent foreclosure[/no-lexicon]

In a consent foreclosure, the mortgage company cannot get a deficiency judgment against you.  This agreement will be written in a court order, and it is important that you get a copy of that order to show that you have been released from further liability.  

A consent foreclosure may have income tax consequences. A consent foreclosure may also make it harder to get another mortgage loan in the future. You should work with a qualified attorney and tax professional.

For more information, view the following video on Options for avoiding mortgage foreclosure.