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Richard C. Lee's Blog

By Rich Lee | Agent in Boston, MA

Vocabulary for Distressed Sellers

ERA MortgageBrian Hatleberg, an ERA Mortgage Advisor and colleague, provides us with some vocabulary for distressed sellers.

"Reinstatement: The lender may agree to let a delinquent borrower pay the total amount they’re behind in a lump sum payment by a specific date. This is often combined with forbearance when they can show that funds from a bonus, tax refund, or other source will become available at a specific time in the future. There may be late fees and other costs associated with a reinstatement plan.

Forbearance: The lender may offer a temporary reduction or suspension of mortgage payments while a borrower gets back on their feet. Forbearance is often combined with reinstatement or a repayment plan to pay off the missed or reduced payments.

Repayment Plan: This is an agreement that gives the borrower a fixed amount of time to repay the amount they are behind by combining a portion of what is past due with the regular monthly payment. At the end of the repayment period, the borrower has gradually paid back the amount of the mortgage that was delinquent.

Loan modification: This is a written agreement between the borrower and the lender that permanently changes one or more of the original terms of your note to make the payments more affordable.

Short Sale or Short Payoff: This is an agreement between the borrower and lender where the lender accepts a payment of less than the total amount due on the mortgage. The lender may agree to accept the payment as payment in full, or they may require that the borrower sign an unsecured note for the amount still owed. A short sale is when the property is sold; a short payoff is when the property is refinanced.

Deed-in-lieu of foreclosure: The lender may accept the voluntary transfer of the title of the property back to them in exchange for cancellation of the mortgage debt. This approach may have tax implications, and it may not be possible if there are other liens against the home.

Assumption: This option permits a qualified buyer to take over the mortgage debt and the mortgage payments, even if the mortgage was originally non-assumable.

Be aware that some workout options affect a borrower’s credit rating more than others. Foreclosures, short sales and deeds-in-lieu of foreclosure are considered "not paid as agreed" and may have serious negative impact on a borrower’s credit score. In addition, a borrower will likely not qualify for a new mortgage for several years."

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