Preventing Foreclosure on your home
If you are currently in the throes of a financial crisis, then foreclosure may seem unavoidable. It may not be. There are many stops on the road to foreclosure and there may be an opportunity to save your home and your credit.
Communication with your lender is essential if you want to avoid foreclosure. A lender does not want a foreclosure either. They want you to keep paying the payments so they can make money. A foreclosure not only costs you your home, it costs the bank money. If you haven't been making your payments, then you are probably getting calls from collectors. Do not avoid them. Discussing your financial problems honestly and sincerely and your lender may help them to be more willing to work with you. There are several options you may be able to negotiate with them.
An adjusted repayment plan is an arrangement made to pay the past due payments over time along with your regular monthly payments. This option is great for those borrowers who have experienced a temporary financial hardship and are now trying to get back on their feet.
Loan modification is when the lender changes the terms of the loan to bring the payment down to an amount that the borrower can afford. The length of the loan can be changed, the interest rate can be lowered and the unpaid payments can be added back into the mortgage amount to bring the account current.
If the value of your home has dropped significantly, then you may be able to renegotiate the balance for a short refinance according to SEDA. You would be released from the current mortgage and refinance your home for the new agreed upon amount.
Similarly, if the balance of your loan exceeds the value of the home, you may be able to sell the property for less than what you owe on the mortgage. This is called a short sale. The lender agrees to accept the sale amount and releases you from responsibility of the outstanding debt.
A deed-in-lieu of foreclosure may be an option if all other options fail and you aren't able to sell the house after a reasonable amount of time. You would deed the home to the lender and in exchange the debt would be forgiven, reported as "paid" to the credit bureaus. Though you would not be able to keep the house, the process is easier than foreclosure and has less of a negative impact on your credit score.
Debt counseling is another option to consider if the mortgage lender is unable or unwilling to work with you. It is likely that if you are struggling to pay the mortgage payments, there are other debts are not getting paid as well. It would be wise to take a look at all of your other accounts with a debt counselor and develop a new budget or negotiate smaller payments on other loans. Debt consolidation may be another option to bring payments on non-mortgage debts down freeing up some of your income to make the mortgage payments.