Solutions to Avoid Foreclosure
After you have missed more than three mortgage payments, your home lender will file a Notice of Default (NOD). This is the first step to a foreclosure. At this point, most people worry that it is inevitable that they lose their home. This is not always the case. If your home does go into foreclosure, you will lose it. Even if you are willing to let the home go, a foreclosure will destroy your credit score. Even if you have received a Notice of Default, there are a few ways that you can stop the foreclosure process.
1 Workout the Foreclosure
You are able to work out a compromise with your lender up until the day that your home is scheduled for auction. In most cases, the lender would rather help you get back on track with your mortgage payments rather than taking your home in a foreclosure. Before you let go of your home, you should talk to your lender to see if you can work something out.
2 Short Sale
If you have received a NOD but the home has not yet been scheduled for action, you can try to get an offer from a buyer. If you do, the lender has to consider it. If your home is foreclosed on, the bank will need to find another buyer. If you present them with a short sale offer, it will save the bank the time and money that it will take to sell the home. You won’t be able to keep your home, however, you won’t have a damaging foreclosure on your credit report.
3 Bankruptcy
If you file for bankruptcy, it will stop the foreclosure proceedings immediately. Federal law prohibits any debt collector from continuing collection activity against you, including mortgage lenders. Bankruptcy may not be a permanent solution, however, it will give you time to find the funds to catch up on your payments. You can find a second job, get a roommate, or rent out the properly before the bankruptcy is final and the bank can come after you again.
4 Assumption Lease Option
Today, most mortgages have a “due on sale” clause. This means that the borrower agrees to pay off the loan in full, if and when they sell their property. If you are facing foreclosure, the lender might be willing to modify your loan by deleting this clause. This will give another buyer a chance to assume the loan. The new buyer would need to meet the lender’s qualifications, however, if they do, their down payment could pay off your past due mortgage.
5 Deed in Lieu
This option is a long shot, but it is worth a try. A deed in lieu means that you voluntarily sign the deed over to the bank. Unfortunately, it will have the same impact on your credit as a foreclosure will, but it will get the home off your hands. Many lenders are not willing to offer this option. Many fear that you will sue later, stating that you didn’t understand the process. If you have a second mortgage on the home or if you have a home equity line of credit, the lender would need to pay this off before executing a deed in lieu. This is another reason why many lenders choose not to offer this option. There are a few situations where the lender would consider this option. If your home has been on the market for several months but it hasn’t sold, the lender might agree. Also, if you have no junior loans or liens on the property and you can prove your financial hardship, a deed in lieu could be possible.
Stopping the foreclosure process is not easy and it is not always possible. However, if you can no longer afford to make your mortgage payments, you should do everything that you can to stop the process.