11 Options to Avoid Foreclosure

  1. Reinstatement – ​​Up until the day the courthouse is sold, you have the right to collect any arrears and stop the foreclosure. The payment would include any months in arrears, late fees and court costs.
  2. Deferment or repayment plan – This is where you negotiate a repayment plan with your mortgage lender to make up any arrears, including late fees and court costs. Forbearance is paid in smaller payments over time rather than a lump sum.
  3. Refinance – If current interest rates are lower than your current mortgage rate and your creditworthiness is not too bad, you can refinance at a lower rate and reduce your total monthly payment.
  4. Rent – ​​Renting the home to have someone else make your mortgage payments not only reduces your immediate stress but also gives you a good future investment. Your real estate agent can show you what properties like yours are currently renting for.
  5. Sell ​​– If you have equity in the property, it is always best to sell the home rather than forfeiting it and damaging your credit and financial future. Your real estate agent can help you determine the fair market value for your home and calculate your net proceeds after the sale. Before this meeting, contact your mortgage lender to get the payout for all your mortgages so the calculations are correct.
  6. Mortgage Modification – Banks do a lot of mortgage modifications because they don’t want to own real estate, which is exactly what happens when they go into foreclosure. After foreclosure, they must pay taxes, insurance, yard and house maintenance, utilities, wealth managers, real estate agents, attorneys, and property maintenance until they can be sold. (Usually at a reduced price). Call your mortgage lender and ask if they would be willing to lower your monthly payment to something more affordable for you.
  7. In short -Refi – Also known as the government’s HOPE program. This relatively new phenomenon shows how far some mortgage companies and lenders will avoid foreclosure. This process involves refinancing a home with a reduction in the principal balance and often the interest rate as well.
  8. Service Members Civil Relief Act (SCRA) The SCRA is a bill that went into effect on December 19 (Public Law 108-189).th 2003. This law provides some protection to military personnel. The law also provides other protections for service members.
  9. Deed in Place of Foreclosure – This is a voluntary/friendly foreclosure where the homeowner essentially returns the deed to the mortgage company. This measure saves the banks a lengthy foreclosure process. You still report a deed-in-lieu as foreclosure on your credit report. And it will give you the same negative credit consequences as mentioned above. However, you can waive your right to a deficiency judgment because of your cooperation. You are still liable for tax and this solution only works in cases where there is a mortgage and no (or very small) liens on the property. In rare cases, the first mortgage lender negotiates with the second mortgage lender.
  10. Bankruptcy – Here, for a fee, you hire an attorney to file Chapter 7, 11, or 13 and take all or part of your debt to court for discharge. Bankruptcy delays foreclosure, but ultimately your credit report ends up in bankruptcy and foreclosure. Many people believe that if they file for bankruptcy all their problems will go away. The truth is, creditors can still come to you about a deficiency judgment, and you can face severe tax consequences as well.
  11. short sale – Definition: A homeowner is short when you owe an amount on your property that, together with closing costs and commissions, is greater than the current market value.
  12. In today’s financial crisis, mortgage lenders and banks welcome short sales and have created entire departments to handle them. Wells Fargo reports 15,000 short sale package requests daily. However, short selling is a complicated process that requires time, patience, good communication skills, organization and professionalism. Short selling done right creates a win-win situation for everyone. A real estate agent with the CDPE Certified Distressed Property Expert designation is best equipped to guide you.

Here are your advantages for a short sale:

It doesn’t matter how many aggregate mortgages you have on the property. You could have a first mortgage, a second mortgage, and even a home equity line of credit and you or your agent could still negotiate a cheap short sale with any lienholders who are protecting you from foreclosure. In a short sale, you fill out a short sale package to show distress and market the home for sale to receive an offer within the days leading up to the public auction. The offers are submitted to your mortgage lenders for approval. In most cases, when an offer is received, the foreclosure process is stopped immediately. The mortgage lender benefits from agreeing to such a sale as it ultimately saves the time and money associated with a foreclosure. Because you as a homeowner are working together in the sale and doing your best to limit the loss, they take a very positive view of this and will work with you and your agent to find an amicable solution. In many cases they are waiving their defective judgments and the government has suspended tax debt for a limited time. (Ask your CPA or accountant about your specific tax liability.) The best news about a successful short sale is that your credit report shows no foreclosure. It shows late payments and a “satisfied” debt. Even though late payments and debt cleared are viewed negatively, the effect is about 50 basis points for two years and could be even shorter if you proactively improve your credit score. Compare a short sale to a foreclosure where you will have a basis point loss of about 300 points. Plus a foreclosure stamped on your credit report for the next 10 years. A foreclosure is the most damaging report of all. Creditors know everyone needs a place to live, and if they were to leave home, how soon would they walk away from a car payment, student loan, medical loan, or credit card payment?