Florida Mortgage Advice: How to Avoid Default

The Florida housing market leads the nation in foreclosures. That’s a significant problem.

How can it be fixed? Lenders are prepared to ease the difficulties of Florida mortgage borrowers. Here are a few way in which they help individuals hold on to their homes:

• Loan modification: Changing at least one term of the mortgage. It is used to bring the loan current by capitalizing the delinquent interest, extending the fixed period on an ARM or lowering the interest rate - by as much as a full point - to reduce the monthly payment amount. This will be done only if the borrower’s income can support the modified payment.

• Repayment plan: A formal, written agreement in which delinquent borrowers pledge to bring their Florida home loan up to date within a limited amount of time, usually less than 18 months. This is used often by borrowers who have had serious setbacks, such as illnesses or injuries or temporary layoffs, that will most likely not be repeated.

• A Forbearance Agreement: This is when the lender reduces or suspends payments for a specific period of time, usually no more than three months. It’s a useful strategy for people who have experienced a catastrophe such as a natural disaster, short-term illness, short-term unemployment, or if there is a pending sale of the property. The suspended payments are added on to the loan.

Even if a lender’s help can’t save the home, owners may still come out ahead by employing some of these options:

• Preforeclosure sales: This is especially good for owners with home equity left in the property after the loan is paid off. That sum goes right to them.

• Deed-in-lieu-of-foreclosure: If there’s not enough home equity to yield a profit, lenders may accept this option, which results in no exchange of cash. The homeowner simply turns over ownership to the lender and walks away. The borrower preserves more creditworthiness than if the home is foreclosed on.

In addition to these mitigation options, if the mortgage is an FHA-insured loan, the owner may be eligible for a one-time payment from the Federal Housing Authority’s insurance fund that will wipe the arrears clean.

The borrower does, however, have to sign a promissory note for the amount FHA pays, and there will be a lien placed on the property that will only be removed after the note is repaid. Fortunately, the note is interest-free and is due when the property is sold or the first mortgage is paid off.

SOURCE: CNN Money