Taking on Foreclosure

Your Options When Facing Foreclosure

Financial difficulties can force you to default on your mortgage payments. The lender will then send you a foreclosure notice to schedule an auction or repossession of your home. However, you can do several things to avoid foreclosure and keep your home. Here are foreclosure prevention tips to consider.

Reinstate the Loan

If you have enough money, you can pay all missed payments and reinstate the loan. Most states allow people to reinstate the loan before a particular date, usually the last day before the sale or auction of the home. However, you should make your reinstatement request well in advance before the foreclosure sale.

Apart from the missed payments, you also must pay applicable expenses, fees, and penalties. The lender may also ask you to pay for the money they spent on enforcing the mortgage, such as attorney's fees. Once the court reinstates the loan, you can start making regular payments.

A deed of trust or mortgage agreement may contain clauses that allow you to reinstate your loan. This step is especially important if your state's laws don't have provisions for mortgage loan reinstatement.

Refinance

You can get a new mortgage that replaces the existing mortgage. The new mortgage will preferably have better terms, such as fewer monthly payments and favorable interest rates. The lender of the new mortgage may also decide to increase the length of the repayment period to give you enough time to regain financial stability. Refinancing has less of a negative impact on your credit score rating than foreclosure.

However, your ability to get refinancing depends on your credit score. If you have previously missed loan payments, few lenders will be willing to refinance your loan. You may also need to have equity in your home before you can choose to refinance.

File for Chapter 13 or Chapter 7 Bankruptcy

Chapter 13 bankruptcy helps you keep the home and stop foreclosure. However, the same is not possible with Chapter 7 bankruptcy unless you have minimal equity in the property and aren't behind in the mortgage payments. Moreover, the foreclosure may eventually happen even if you file for Chapter 7 bankruptcy. But the filing can delay the foreclosure for a few months.

Nevertheless, filing for bankruptcy just to delay the foreclosure process is not recommended. A delay may only be necessary if you have other debts that will go away once you file for bankruptcy.

Dispose of House

At some point, you simply may run out of options to stop the foreclosure or make further mortgage payments. In such a case, selling the property may be your last remaining alternative. Find an investor and quickly sell your equity in the home. Remember that the transaction must be complete before the auction.

If your equity in the house is too small to pay off the balance, go for a short sale. In a short sale, the bank accepts a payment that is way lower than the outstanding mortgage amounts.

Another option is to choose to deed the property in lieu of foreclosure. Under this arrangement, the lender owns your equity in the property. This type of arrangement is ideal if the owed amount is much more money than the value of the property. However, a deed in lieu of foreclosure is not ideal if you own a significant amount of equity in your home.

If you are facing foreclosure, you can use many options to keep ownership of your home. The best approach is to reach out to a real estate attorney to know the best option for you. Peet Law Group provides real estate legal services at affordable rates. Contact us today for more information.

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