Alternatives to Avoid Foreclosure
The type of mortgage loan you have may determine what types of alternatives you may be eligible to pursue. Please contact your lender and a Housing Counseling Agency to discuss which alternatives you are eligible for, and which one is best for your situation.
Foreclosure should be avoided because it will have a tremendous impact on the family's life as well as your credit record. Once you've missed several mortgage payments due to financial constraints, don't try to avoid the lender but instead, deal with the situation properly. Why don't you talk with the lender and discuss about the possibility of a loan modification? If your lender won't modify the interest and principle, look for a smaller and local bank or cooperative who will.
Modifying a loan is the best tool that you can use if you haven't paid several monthly payments. Once a loan is modified, it will be restructured in such a way that the monthly payments will fit into your budget. If you're not sure about this alternative, you may need to talk to some professionals.
Most people who are in having problems with their mortgage can qualify for loam modifications. If you wish to keep the existing terms, everything might lead to foreclosure. You should also be aware that modifying a loan is different from debt consolidation, forbearances, and refinancing mortgage loan. These are considered long term solutions which can further put homeowners like you in an undesirable situation.
Through the modification programs, a homeowner can forget about the risk of foreclosure since the loan will be reinstated. In loan modifications, both parties benefit from the changes made in the terms. The interest, outstanding principal, late fees, and past dues will be included in the modified loan and so the lender will not be at a loss. The period for repaying the loan will also be extended for a longer time and so the borrower will not be affected much.
Since the loans are extended over longer periods, the lender will enjoy more of the added interests. On the part of the borrower, it doesn't matter if the payment period is extended as long as the monthly payment is reduced to a smaller amount that they can afford to pay. So you see, both parties are able to benefit.
This is an excellent way to prevent foreclosures. Lenders are willing to modify loans as long as you take the initiative to approach them and make a deal. You are not only protecting your home from foreclosure, but you are also protecting your credit rating through the loan modification.
Rule # 1: Negotiate, negotiate, negotiate...
Mortgage holder of foreclosed property is prepared to lose big on all foreclosed property.
Any strategy delays foreclosure action and allows time to develop and negotiate options and salvage losses on both sides. Play this as the stongest hand. It most likely is.
Offer to maintain the property rent free to protect it against vandalism and weather damage until short sale can be arranged.
Save mortgage payments for down payment on a short sale where your property will be sold at a fraction of its value and debt.
Find a lender who will offer enough for a short sale and a thirds party who obtains the short sale only to offer the home to you at cost (or cost plus a fee). Think outside the system but avoid opportunists and swimming among the sharks. Allow some good people to help you.
Negotiate for a 4% interest rate on reduced principle if home has lost value far less than mortgage.
Think outside the box and challenge working within conventional restraints such as credit ratings. Money always talks loudly in a very tight economy.
Conventional Options To Retain Your Home:
The following options will result in you retaining ownership of your property.
- Repayment Plan: This usually involves establishing a schedule with your Lender to make a full regular monthly payment plus a little extra each month, to repay the delinquent amount over a specified period of time.
- Special Forbearance Plan: This option may provide for a temporary reduction or suspension of payments, that will be increased at a later point to repay the delinquent amount over a specified period of time.
- Mortgage Modification: This option may allow you to refinance the debt and / or extend the term of your existing mortgage loan.
- HUD Partial Claim: If your loan is an FHA insured loan, your lender may be able to obtain a one time payment from the FHA-Insurance Fund to bring your mortgage loan current with payments.
- Refinance: This option may allow you to use the equity that you have established in your home to pay the delinquent amount. Depending on the interest rate of your new loan, your monthly payments might be reduced. You can explore refinancing with your existing Lender as well as with any Lender of your choice.
- Homeowners’ Emergency Mortgage Assistance: This option provides special financial assistance to Pennsylvania residents who are facing the possibility of losing their primary residence through foreclosure. Depending on the Homeowner’s situation, they may be eligible to receive a LOAN to bring their mortgage payments current. Homeowners, depending on their circumstances, may also be eligible to receive financial assistance with their monthly mortgage payment for up to 24 months from the date the mortgage became delinquent.
Conventional Options To Dispose Of Your Home:
In situations where you do not want to retain ownership of the home, the following disposition options may be available as an alternative to Foreclosure. These options affect your credit rating less than a Foreclosure will.
- Sell The Home: If there is sufficient equity in the property, you may be able to receive more for your property than what is due on the mortgage loan.
- Assumption: With this option, you would sign over the property to another person. That person would then take possession of your home, and take over making the payments.
- Pre-Foreclosure Sale: This option may allow you to sell your property for an amount less than what is necessary to pay off your mortgage loan.
- Deed In Lieu Of Foreclosure: This option may allow you to voluntarily "give back" the property to your Lender without further damaging your credit.
A last resort option to foreclosure is what s called a ‘deed –in- lieu-of foreclosure’. In plain English it simply means voluntarily give the property to the lender. For this to be legally binding the lender must agree. This agreement usually means the lender finds it profitable to go ahead. The downside to this is that you cannot receive any equity from the sale. The upside is you avoid attorney fees. Avoiding foreclosure far outweighs the loss of equity.
If you are behind on you monthly payments then you should consider an alternative option to bank foreclosure. Foreclosure results in adverse credit and other financial difficulties. It would be very hard to obtain future mortgages with foreclosure history.
On the flip side if you are the lender bank foreclosure results in losses which are best if avoided completely. Both lender and buyer should be proactive resolving possible foreclosures since it is a win-win for both parries.
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