If you are behind in payments on your mortgage, you may be concerned about the very real possibility of foreclosure. If you are in default on your loan and are considering options that you can take to avoid foreclosure, here are some alternatives to consider.
Reinstating Your Mortgage
You can reinstate your mortgage by making up the missed payments along with any fees and interest the lender requires. Sometimes fees can even be negotiated to a lesser amount. Once you receive notice from your lender that foreclosure is imminent, you will have a certain amount of time to pursue this option. While this option is ideal, it can be difficult to accomplish since financial difficulty is often what leads to impending foreclosure in the first place.
Refinancing or Loan Modification
These options can be ideal, since they allow you to secure a better rate, and/or pay off your loan and start over. But issues such as current income and the ability to sustain your loan, the amount of equity in your house, neighborhood values and more can affect these possibilities. If your mortgage is owned by Fannie Mae or Freddie Mac, you may qualify for refinancing under the Home Affordable Refinance Program.
Taking out a Reverse Mortgage
With a reverse mortgage you can access the equity of your home without selling. With a reverse mortgage you receive money from a lender which you typically do not need to pay back while you still live in the house. If you sell the house, the loan must then be repaid. You are a candidate for a reverse mortgage if you are over 62 years old and have considerable equity. The downside of a reverse mortgage is that they take part or all of your equity, leaving you with a significantly smaller estate to pass to your beneficiaries. Also, while you do not have to make mortgage payments, you may still be liable for property taxes and other fees, so making certain you can afford these costs is key.
Taking the Fight to Court
If you believe that your lender didn’t follow state or federal law when approaching the foreclosure process or you feel they violated the terms of your loan agreement, you may decide to fight the foreclosure in court. Foreclosing parties are often required to show documentation that they own the mortgage loan and have a right to foreclose.
Giving up your House
When foreclosure is looming, you may decide that it is the right choice for you to give up the house. If you decide that this is the best route for you, there are a couple ways to approach this decision.
One way is to arrange a “short sale” and sell the home as a means to avoid foreclosure. With a short sale, you are selling the house for less than the outstanding debt. If you have more than one mortgage on your house, this option may not be a possibility, since all lending parties have to agree to the terms of a short sale, and your second and third mortgage lenders will not profit from this scenario. If you are able to arrange a short sale, it will have an added long-term benefit by not negatively impacting your credit score as much as foreclosure or bankruptcy.
Another way to give up your house as a means to avoid foreclosure is to sign a “deed in lieu of foreclosure,” which simply means handing over the house to your lender by deeding the property to them so that foreclosure becomes unnecessary. If you decide to pursue this route, make sure you come to an agreement with your lender so that they won’t pursue any further deficiency. It is always important to get agreements of this kind in writing. Some homeowners are able to negotiate a “cash for keys” agreement where the lender provides the homeowner with a small amount of money in order to assist the homeowner in relocation.
Ultimately, while foreclosure is an unfortunate scenario, there are ways to avoid it, especially if you act sooner rather than later. If you are considering your options and are unsure which route to take, foreclosure mediation allows for open communication between homeowners and lenders on neutral ground so that a mutually agreed upon alternative can be reached.