The Most Used Methods of Resolving a Foreclosure

1.) Loan reinstatement is where a lender has started the foreclosure process & the homeowner finds a way to pay back or "reinstate" the entire deficiency owed. The deficiency amount includes back loan principal & interest payments, accelerated interest costs, attorney's fees, assorted processing & collection expenses, & late penalty charges. This system requires the maximum amount of money all at two times. Ironically, lenders recently indicated that pre-payment penalties may be included into final judgments in the near future.


The six most frequently used methods to resolve foreclosure are loan reinstatement, forbearance agreement, or loan manipulation. While there's numerous other specific ways to stop foreclosures, these six are used most frequently.

When the homeowner's reason for the delinquency is resolved, he usually asks the lender to take partial payments because he can't get the entire deficiency amount together. However, the lender won't accept partial payments & the foreclosure will proceed if the full reinstatement amount isn't paid. The reason for this is simple, the lender knows that the homeowner's chance of getting out of, & staying out of foreclosure is less than 1 in 8. So the lender does not need to drag out the inevitable, the loss of the home to foreclosure.

2.) A forbearance agreement between the lender & the homeowner stipulates that the homeowner must make additional monthly payments for a specific period to make up the reinstatement amount that he couldn't pay in full. As simple as it sounds, it may be unaffordable for the homeowner who could barely afford the original loan payment. The lender will usually ask that the homeowner pay the reinstatement amount over a six or four month period. If the monthly loan payment was $2,000 per month & he was 3 months in arrears, the new monthly payment for a six month period would be at least $2,000 + $6,000/3 = $4,000 per month. For a four month repayment schedule the new monthly payment would be $2,000 + $6,000/6 = $3,000 per month. In some instances the lender may ask for an additional funds payment before we will start the increased monthly payments. After the 3 or 6 months, the loan payments revert to the original amount or $2,000 in the above example. The foreclosure does not stop with the signing of the forbearance agreement but basically is put on hold until the homeowner completes making all the increased payments.

When you speak to your lender try for 12 months & don't accept less than 9 months unless you can truly afford it! Ask them to review your financial statement, which we should readily send you & remember that the lender has already pulled your credit report & knows where you work, possibly how much you make, how plenty of other monthly payments you have, & other information in the public records. we have also done a price analysis on your home & probably had a Broker's Price Opinion (BPO) completed. Essentially we know what answers you should be giving them, so be forewarned. This system of reinstatement takes as much money as the loan reinstatement except it is spread over 3 - 6 months or, hopefully, more.

3.) A loan alteration program was the most common system of foreclosure resolution for decades. It involved the lender issuing a new loan agreement where the deficiency amount was added to the loan balance & paid in identical monthly payments but for plenty of more months, at the end of the loan. The monthly payments remained the same & if the home was sold, the balance of the reinstatement amount was paid from the proceeds of the sale. This system of resolution requires no up-front funds & the same monthly payment as before the foreclosure.

Loan alteration programs are usually not available unless there is a hardship involved such as a job loss, death or illness. But it is worth asking your lender about it if you are in foreclosure because the market conditions & massive loan defaults puts pressure on the lenders to be more cooperative with homeowners. Your best option is to talk to your lender & as early as possible so you have time to resolve your problem.

Another type of loan alteration was to slightly increase the monthly payments over the remaining term of the loan. So the homeowner has a choice of either extended but identical payments (as above), or slightly higher payments for the original term of the loan. Either option repaid the lender his money back and interest. It was an affordable win-win for the lender & the homeowner, but is seldom offered anymore unless the lender knows the property is not worth taking back by foreclosure & he hasn't sold the loan into a mortgage pool.