A beautiful home – complete with loving family and wonderful memories – is part of the American Dream. But just because you manage to attain the home of your dreams doesn’t mean it will be smooth sailing from there on. Your dream home may come at a high price, meaning big mortgage payments, which, in a crisis, could put you at risk of foreclosure.
If your home is at risk of foreclosure, the problem must be tackled at once and with the utmost care – one wrong move could spell disaster. However, by taking the proper steps, this disaster can often be averted.
Foreclosure Avoidance Tactics
If your home is at risk of foreclosure, don’t start packing – take action! Some of the steps you can take to save your house include:
- Reinstatement
When you are behind in your mortgage payments, reinstatement lets you to pay back the amount in lump sum payment (which may include any interest and penalty charges) before a specific date. - Short Refinance
In a short refinance, the lender may agree to forgive some part of your debt and refinance the remaining debt into an entirely new loan. - Special Forbearance
Sometimes, a short-term financial hitch like medical emergency or a decrease in income may not allow you to make mortgage payments on time. If your lender believes that you have a valid cause for the missed payments, it may be agree to help you out with a special forbearance. Depending on your financial circumstances, your lender may consent to a repayment in which you will temporarily make lower payments; you may also get an interim suspension of payments. However, in order to secure this agreement, you will have to assure your lender that you will resolutely abide by the new repayment plan. - Mortgage Modification
Loan modification allows you to refinance your mortgage loan or even extend the term of your loan. The lender may settle for monthly mortgage payments that are within your financial means. However, to qualify for this alternative, you need to persuade your lender that your monetary problems are only temporary and will soon be resolved.
When Foreclosure is Inevitable
If your situation makes foreclosure unavoidable, here are some tactics you can use to dampen the financial blow:
- Pre-Foreclosure Sale
If you are absolutely convinced about your deteriorating finances, then the only option left for you is to sell your home for less than the amount required to pay the mortgage loan. You may be eligible for this alternative only if you default in your mortgage payments by a few months, or as specified by your lender. In addition, you may be required to sell your home in a specific amount of time. If you can’t bear to move out, you could sell your house to a friend or an investor who will then lease the home to you. The best way to do this is to sign a lease (or contract) that includes an “option to purchase” clause, which gives you the right to buy back your home once your finances have improved. However, this alternative does have significant risks, as sometimes the investor can borrow against your property or may even sell your home without your authorization. - Deed in Lieu of Foreclosure
Another way out is to willingly give your property to the lender, in which case the lender will pardon your debt. You will qualify for a deed in lieu of foreclosure only if you are unable to sell your home before foreclosure. The only advantage of this option is that you are rescued from a foreclosure as well as a bad credit record. - Bankruptcy
Many people believe that filing for bankruptcy is a nice solution to foreclosure. In reality, all bankruptcy can do is delay the foreclosure process and buy you some time to catch up on your payments. Once the bankruptcy-instated suspension is revoked, the lender may ask for a full payment, which may require that you apply for a refinancing loan. However, the chances of getting a refinance loan are almost zero at this point, because the bankruptcy declaration will have left you with a negative credit score.
Conclusion
As a homeowner, it is up to you to take all the necessary steps to save your house from foreclosure. However, if you feel pressured and need assistance with these matters, please contact our firm for an initial consultation to see if we can assist you.
The information contained in this newsletter is provided as a service to our clients and friends and does not constitute individualized legal advice. We try to provide quality information, but we make no claims, promises or guarantees about the completeness or adequacy of the information contained in this article Please contact our office for advice unique to your situation.