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Most people will experience some form of financial issues at one time or another, and if those problems result in falling behind on your mortgage payments, you may be looking for creative ways to avoid foreclosure.
Even if you’re so far behind on your monthly payments that you’re facing foreclosure, in most cases, there is an answer that will help you avoid foreclosure or bankruptcy. The key is knowing who to contact and where to look for help with your mortgage. Borrowers may not be aware of all their options to avoid foreclosure.
1. Try Your Lender First
The first step to avoid foreclosure is to contact your mortgage lender. Lenders have an incentive to keep the current homeowner on the mortgage, as foreclosure proceedings can be costly and may prolong the time period in which they are not receiving mortgage payments.
It’s possible that your lender agrees to a loan modification, a type of refinancing process in which the loan terms are adjusted to make it possible for the borrower to make their mortgage payments. You may be offered a longer term for the loan, or you may pay some of the debts you’ve accrued over the next several months, adding the debt in installments to your monthly payments.
Loan modification could be a great way to avoid foreclosure without needing to make any adjustments to your ability to stay in the property. Check with your lender first to find out if a loan modification is the best option for you.
A forbearance allows the homeowner to delay all or part of their mortgage payments until some agreed-upon date in the future. The most important thing for the client to know about this option is that it is not loan forgiveness. The amount you owe will remain the same, but you can delay your payments until you’re in a more favorable financial situation.
Usually, this process is more well-suited to a borrower who is experiencing acute financial issues – a sudden and unexpected large expense, for example – but who generally has the financial ability to handle their mortgage.
At the end of the term of the forbearance, homeowners are expected to pay the debts as a lump sum, i.e., all at one time. If you accept a forbearance, it would likely be wise to search for ways to handle this unpaid balance when it comes due.
2. Foreclosure Prevention Programs
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There are organizations that take a special interest in helping homeowners at risk of foreclosure. If you have begun to default on your loan, you may find assistance from a local or national program
Be aware, however, that there are unscrupulous companies that may market services to prevent foreclosures to a homeowner facing foreclosure. They will look for a client who is unaware of their scams or shady practices in the past. Look for programs backed by the government and rated highly among every past client.
If homeowners have fallen behind on payments due to a disaster, particularly if your loan is financed through Fannie Mae or another federally-backed program, you may be eligible to stop foreclosure with money set aside for disaster relief.
If your financial issues are due to a designated disaster, search for services that provide disaster relief in your market. They may have programs for foreclosure prevention for your property.
Programs for Seniors or Veterans
Borrowers who fit into certain groups, such as senior citizens for veterans of the U.S., may be able to obtain assistance with their mortgages from local or state programs designed to help that group specifically.
You may find a website for a federal program that is a fit for your situation, or you could contact your bank to find out if there is a local program that could help you.
3. Help from an Attorney
Some people may find the process of seeking out an attorney to be stressful or daunting. However, an attorney may be a useful resource for avoiding foreclosure or navigating the court system if the foreclosure process has already begun.
As above, be sure to check into the experience an attorney has with the foreclosure process. Some lawyers try to find a vulnerable client who is just trying to keep their house. Reputable practitioners will work with lenders and the bank to help the homeowner stay in their home.
A potential client should look for an attorney who works pro bono in this arena. There are incentives in place for lawyers to act in the best interest of their clients, so don’t make an agreement with someone who is selling their service without a record of good results for the client.
4. Selling Your Home (without a foreclosure sale)
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You may have thought that staying out of foreclosure means staying in the home. However, some property owners find that it’s preferential to sell the house before a foreclosure sale becomes necessary.
A foreclosure sale is the final outcome of the foreclosure process. It may be more beneficial to everyone to consider a short sale instead. This is an option before pre foreclosure has begun. So, how does a short sale work?
The short sale process involves an agreement between the lender and the homeowner to sell the property for less than the remaining mortgage balance. In a short sale, the lender keeps the property, and the borrower is only responsible for the difference between the money left to pay on the mortgage and the price the buyer will pay once the property is sold.
Short sales aren’t always the most attractive option, but they can allow the owner to start fresh without getting involved in a foreclosure auction or needing to declare bankruptcy. Sometimes, the lender or the potential buyers may even offer financial incentives for selling the home in good condition.
The bank or other lender has to approve of a short sale in order to be able to sell the home in this manner. Provided that bank approval goes through, the buyers and the sellers can come out better off in a short sale.
5. Reinstate Your Loan
For people who found themselves behind on their mortgages but who aren’t currently in financial distress, they could simply submit a payment for the overdue amount. This is also an option for those who experience a sudden windfall, such as an inheritance or other sum of money all at once.
6. Deed in Lieu
Another option that allows an owner to avoid foreclosure, though without retaining the home, is a deed in lieu of mortgage. In this case, the lender will take the deed to the property in place of the remaining mortgage amount.
A deed in lieu could be in the best interest of a tenant who sees no possibility of catching up on payments in the future and wishes to be able to walk away without significant debt. There will still be an impact on the credit of the borrower, but it is not as significant as would be caused by foreclosure.
7. File for Bankruptcy
Depending on the type, bankruptcy could allow someone to keep their home. Chapter 7 is designed to give someone time to sell off their assets in order to balance their debts. However, Chapter 13 is another way for a person to remain in their home.
Chapter 13 bankruptcy is essentially another type of repayment plan. Be cautioned, though, that filing bankruptcy is a long, complicated process and repayment could take up to 5 years, sometimes more.
Under Chapter 13, some debts may be eliminated entirely, and others could be reduced. Even if the foreclosure has already begun, bankruptcy will halt the proceedings and allow you to restructure items owed.
8. Re-Evaluate Your Finances
Sometimes, the most effective way to head off financial troubles before even getting to pre foreclosure is to find out if there are ways to increase the amount of funds available to you. Depending how much time is left in the loan term, it may be possible to “tighten the belt” for a few months without changing one’s lifestyle in the long term.
Examples of places to look for opportunities to increase your cash on hand could be:
- Many people find that they are paying an automatic monthly fee for subscriptions they aren’t even using. Generally, these aren’t large costs of themselves, but they could add up overall.
- Check your bank and credit card statements for any recurring charges for things you don’t use or don’t need.
- Like subscriptions, some people are still paying for a membership they don’t make use of. Gym memberships are the prime example of this sort of passive loss of funds.
- Unused Items
- Have you been meaning to hold a yard sale or list something on a for-sale site? If you’re looking to free up some funds, now might be a good time to get them sold.
9. Make Credit Work for You
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In some cases, particularly if you still have good credit, it may be a good choice to acquire a low interest rate loan or to see if there are expenses that could be transferred to credit cards. Transferring a large balance from one credit card to a card with a period of no interest could buy someone as many as 18 months to concentrate on other costs.
Likewise, paying any utilities or other household expenses using a card with a low interest rate or a long period of no interest. That way, the cardholder can make the minimum payment for a period of time, until they’re able to get their feet under them financially.
10. Get Help from the Experts
There are all manner of organizations and programs designed for exactly the purpose of helping people stay in their homes. A HUD-approved counselor can help people understand and navigate the sometimes difficult and often overwhelming world of mortgages and foreclosures.
Seek out an expert with the certification and backing of the federal government to ensure you’re getting advice that suits your unique situation. A counselor certified by the Department of Housing and Urban Development will be most likely to have the knowledge and expertise necessary for helping someone at risk of foreclosure.
Creative Ways to Avoid Foreclosure
Whether you’ve already received notice of pre foreclosure or are just a couple of payments behind and concerned about the possibility of foreclosure, it’s not too early to take the first step toward avoiding foreclosure.
Sometimes a homeowner ends up in pre foreclosure or even bankruptcy simply because they don’t know their options! You may be able to avoid an unwanted sale with just a little more information. There are all sorts of creative ways to avoid foreclosure and many people and organizations who can advise a homeowner facing foreclosure.