Options when Facing Foreclosure
If you are facing foreclosure, don’t feel that your fate is locked in to losing your home. There are options which can help you save your home, but you must act quickly as most of them are time sensitive.
The best option for you depends on your specific situation. For example, a repayment plan may be a fit for someone who has missed only one payment, whereas a loan modification may be necessary for a homeowner facing a long-term reduction in income. A homeowner should contact their lender or a legitimate counselor as soon as they realize that there might be a problem in making their mortgage payments on time to determine what the best solution could be.
The range of options for a homeowner who has fallen behind on their mortgage payments includes:
- Repayment plans
- Forbearance – postponement of regular payments
2. Loan for Arrears Amount
- This is available to homeowners who have their mortgage insured by either the Federal Housing Administration or a private mortgage insurer and is known as a Mortgage Insurance Advance Claim Payment. A one-time payment to the lender is made by the mortgage insurer to cover all or a portion of the default.
- Lenders will consider this option when a homeowner faces a permanent or long term reduction in income. A loan modification can help a homeowner permanently change one or more of the terms on the mortgage to make the monthly payments more manageable.
4. Refinancing
- HOPE for Homeowners
- FHASecure
- The Federal Reserve Board’s Consumer’s Guide to Mortgage Refinancings
provides a good summary of things to consider before refinancing
5. Sale of the Property
- With a realtor
- For Sale By Owner (FSBO)
6. Investor Sale
- Pre-Foreclosure Sale or Short Payoff: Lenders will consider accepting less than the full amount owed on a property through one of these sale options.
- Assumption of Mortgage: Regardless of what the original loan documents state, a lender may allow a qualified buyer to assume your mortgage, especially if the current market value of the property is less than the mortgage balance.
7. Bankruptcy
8. Foreclosure
9. Deed in Lieu of Foreclosure
- A homeowner may voluntarily transfer title to the property to the lender in exchange for cancellation of the remaining debt. Some states though allow lenders to pursue a deficiency judgment making the homeowner personally responsible for any remaining balance after a foreclosure sale. A deed in lieu of foreclosure is less damaging to a homeowner’s credit than a foreclosure, though it does not always eliminate the potential income tax liability on the amount of debt forgiven.
10. Do Nothing
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