Sometimes a property owner will buy a property in addition to their primary residence to gain income from rent or potentially flip the property to a new owner for a profit. This also can result in tax benefits and appreciation over time. If you have bought this property with the assistance of a mortgage, however, you may find that you are facing a foreclosure if you are struggling to keep up with the mortgage payments. This can affect both residential and commercial investment properties.
In many cases, the lender on your mortgage will agree to a loan modification that allows you to keep the property instead of going through a foreclosure. There are several ways to modify a loan, ranging from reducing the monthly payments while extending the mortgage term to reducing the interest rate. Property owners who have loans through Fannie Mae or Freddie Mac may be able to use the Flex Modification program to modify their loan. This can be an alternative if your lender is reluctant to offer a proprietary modification. Read more here about loan modifications, and read more here about the Flex Modification Program.
Short Sales and Deeds in Lieu of Foreclosure
A short sale is another alternative to a foreclosure, as is a deed in lieu of foreclosure. A short sale involves selling the property for less than the amount that is owed to the lender, which releases its lien in exchange. The lender might agree to accept the proceeds of the short sale as a full satisfaction of the lien. Or the lender might continue to pursue the borrower for the remainder, which is known as a deficiency judgment. (This is especially likely following a foreclosure of an investment property compared to a personal residence.)
On the other hand, a deed in lieu of foreclosure gives the lender the deed to the property. In most situations, a deed in lieu of foreclosure should release the borrower from the debt entirely. If the property value is much less than the debt owed on the mortgage, however, a lender may retain the right to pursue the borrower for the deficiency. This would amount to the difference between the debt and the fair market value of the investment property. Read more here about short sales and deeds in lieu of foreclosure.
Other Ways to Save an Investment Property from Foreclosure
If a loan modification is not feasible, you might be able to use the Home Affordable Refinance Program (HARP) to refinance your loan. This program is available only until the end of 2018 and applies only to investment properties that have between one and four units. More complex requirements may apply as well. As with the other alternatives discussed here, you will need to complete a loss mitigation application. You may want to discuss your situation with an attorney who is experienced in foreclosure issues before sending your application to the lender.
You also might be able to agree with the lender on a forbearance. A forbearance agreement involves a temporary delay or reduction in mortgage payments and an assurance by the mortgage holder that it will not pursue a foreclosure during that time. You should make sure to get any such agreement in writing. Read more here about forbearance agreements.