9 Options To Avoid Foreclosure
If the reason the homeowner missed payments is temporary and it has been resolved then they have the option to reinstate their mortgage all the way up to the date of the bank sale or auction.
FORBEARANCE OR REPAYMENT PLAN
If the issue that caused the homeowner to miss payments was temporary and the homeowner is not able to make a one-time reinstatement payment, they may be able to negotiate a forbearance or repayment plan. If the homeowner does not have the means to repay all of the missed payments and legal fees, then this is another option that also can reinstate the mortgage.
SELL THE PROPERTY
If the buyer has equity in their property they can sell it and cure the foreclosure. Unfortunately, many sellers mistakenly believe that they have to sell faster than they really do and end up taking the first offer that comes along. If they are working with a licensed real estate agent, particularly one well versed in the foreclosure process and timelines, that agent can help them price the home to harvest as much as possible of their hard earned equity.
RENT THE PROPERTY
In some cases, owners facing foreclosure will have payments low enough to allow them to rent their property and keep up their mortgage payments. This is often just a short term solution since when taxes and insurance come due the homeowner may not be able to afford them. This causes the mortgage company to force an escrow account on the property causing the payments to go up and the homeowner might find themselves in the same position as they were before they rented the property.
If the homeowners have sufficient equity and their credit has not been too badly damaged they may be able to refinance. This is typically another short term solution since the payments on the property typically go up considerably due to the refinance.
In some cases when homeowners do have the means to afford their mortgage payments or nearly all of the mortgage payment their mortgage company may qualify them for a mortgage modification. A mortgage modification is very similar to a lower interest refinance where the lender lowers the interest rate on the existing loan in order to lower the payments.
DEED IN LIEU OF FORECLOSURE
A Deed in Lieu of Foreclosure is often referred to as a “friendly” foreclosure since the homeowner essentially gives the deed back to the bank. This prevents the bank from having to go through the expense of a lengthy foreclosure process. The mortgage company agrees to take the deed back in exchange for the property. However, the mortgage company still has a valid mortgage instrument on the property and may seek recourse via a Deficiency Judgment.
A bankruptcy may stop a foreclosure and allow a homeowner to reorganize his debt and keep his property. The reality however is that most of the time this is not the case and the bankruptcy on stalls or delays the foreclosure. A major drawback to the bankruptcy is that it makes it very difficult for the homeowner to sell the property once he enters the bankruptcy process and it makes it nearly impossible to negotiate a short sale because the bankruptcy trustee must approve all proceedings.
SERVICE MEMBERS CIVIL RELIEF ACT (SCRA)
The SCRA is a bill that was signed into law in December 2003. This law provides certain protection to military personnel who are in foreclosure in specific situations and the law also provides certain other protections.
When a homeowner owes more on a property than it is currently worth and one of the above solutions does not apply to their situation, there is the option of pursuing a short sale.
Negotiating a short sale is very complicated and involved and should, for the majority of homeowners, be put in the hands of an experienced real estate professional who ha the training and experience to navigate through the intricacies of the process.