Your Options When Facing Foreclosure
If you’re faced with the threat of foreclosure you may be in the dark about the range of options available. There are no less than 7 main choices open to you and 3 will actually allow you to keep your home. We’ve set out these choices below:
1. Loan Modification
Your lender may agree to modify the terms of your mortgage to make the repayments affordable. Typically one of three areas is modified:
- The current interest rate may be lowered.
- The interest rate may be fixed if it is adjustable.
- The length of the loan may be extended to spread your repayments out.
2. Payment of the Arrearage
The simplest option for a you to avoid foreclosure and retain your home is simply to pay the arrearage. This requires that you have access to sufficient capital to settle the late payments. Unfortunately, few homeowners are lucky enough to be in this position.
For many homeowners facing foreclosure the above options are not suitable.
A loan modification is subject to agreement by your lender. Your lender may decline this arrangement (for instance if they did not believe in your ability to repay even on modified terms). Meanwhile, payment of the arrearage requires capital many homeowners simply don’t possess. One way to keep your home in this event is to file for bankruptcy.
3. Filing for Bankruptcy
After filing federal law protects you by prohibiting any collection activities by lending companies or debt collectors. The most common form of bankruptcy filing for homeowners wanting to protect their property is a Chapter 13. This will allow you to set up a plan to repay (or partially repay) your debt over a 3 to 5-year term. You would typically be required to have a regular income to be suitable for this type of filing.
You may find yourself unable to retain your home – or you may simply prefer to move on. In this case, there are 4 further options open to you.
4. Secure a Traditional Sale
If you still have equity in your home the best way to settle your mortgage can be a straightforward sale. You’ll naturally want to secure the best possible price. This way you will have the most money left over after your lender takes what’s owed.
Since many homeowners facing foreclosure don’t have positive equity in their homes, an alternative is often needed…
5. Secure a Short Sale
For most homeowners needing to sell (and lacking equity), a short sale is the best choice available. In this circumstance, the sale price will be less than what you owe to the bank. The bank will need to approve the final figure.
With help from our expert negotiators, your bank may well accept the sale price and forgive the deficiency you owe. Your mortgage will therefore be considered repaid. In addition we have a high success rate in negotiating resettlement costs whereby your bank makes a payment to support you in finding a new home.
6. Deed in Lieu
A Deed in Lieu provides a simple alternative to a short sale. This process just involves you voluntarily signing the deed to your home over to the bank in place (or ‘in lieu’) of repayment. Some homeowners are attracted by the simplicity of this option, but in fact we strongly advise against it…
– Your credit will be affected negatively (in just the same way as a foreclosure).
– Your bank will rarely offer any relocation funds or other seller incentives.
While an easy option, a Deed in Lieu arrangement is not one we recommend to any homeowner serious about managing their finances for the long-term.
7. Allow the Foreclosure
The final ‘solution’ is to simply take no action and allow the bank to foreclose on your home. Again, this option will damage your credit and should never be treated as anything more than a last resort.
You should always remember that your bank’s priority is the pursuit of its own interests – not yours. Never allow yourself to be pressed into any agreement that you’re unhappy with. Work with us to and get a team of top professionals on your side.