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Borrowers with little home equity still have options

Part 3: Making the best of a bad financial situation

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(This is part 3 of a three-part series. Read Part 1 and Part 2.) This is the last of three articles on how borrowers who anticipate that they soon will be unable to make their mortgage payments can make the best of a bad situation. This article applies to borrowers who do not have significant equity in their homes. Borrowers with no equity can't open a credit line and draw on it to stay current on their mortgage, nor can they consolidate non-mortgage debts in a new mortgage. The options they have all require the concurrence of the lender. But that does not mean that they have no leverage. The lack of equity makes foreclosure an unattractive option to the lender. With no equity, the lender who forecloses is not reimbursed for lost interest, foreclosure expenses or real estate sale commissions. Hence, the lender will be receptive to alternatives to foreclosure that will cost less. The most attractive of these to the lender is a forbearance agreement, where payments are suspended for a p...