Foreclosure Avoidance Options
Foreclosure is one of the most devastating financial
challenges that a family can face and one that many times can be
avoided. The options available to residents for foreclosure are many,
including but not limited to short sales. Following is a brief explanation of these solutions:
A reinstatement is the simplest solution for a
foreclosure, however it is often the most difficult. The homeowner
simply requests the total amount owed to the mortgage company to date
and pays it. This solution does not require the lender's approval and
will 'reinstate' a mortgage up to the day before the final foreclosure
Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner
negotiating with the mortgage company to allow them to repay back
payments over a period of time. The homeowner typically makes their
current mortgage payment in addition to a portion of the back payments
A mortgage modification
involves the reduction of one of the following: the interest rate on
the loan, the principal balance of the loan, the term of the loan, or
any combination of these. These typically result in a lower payment to
the homeowner and a more affordable mortgage.
Rent the Property
A homeowner who has a mortgage payment low enough that
market rent will allow it to be paid, can convert their property to a
rental and use the rental income to pay the mortgage.
Deed-in-Lieu of Foreclosure
Also known as a "friendly foreclosure," a deed-in-lieu
allows the homeowner to return the property to the lender rather than go
through the foreclosure process. Lender approval is required for this
option, and the homeowner must also vacate the property.
Many have considered and marketed bankruptcy as a
"foreclosure solution," but this is only true in some states and
situations. If the homeowner has non-mortgage debts that cause a
shortfall of paying their mortgage payments and a personal bankruptcy
will eliminate these debts, this may be a viable solution.
If a homeowner has sufficient equity in their property
and their credit is still in good standing, they may be able to
refinance their mortgage.
Servicemembers Civil Relief Act (military personnel only)
If a member of the military is experiencing financial
distress due to deployment, and that person can show that their debt was
entered into prior to deployment, they may qualify for relief under the
Servicemembers Civil Relief Act. The American Bar Association has a
network of attorneys that will work with servicemembers in relation to
qualifying for this relief.
Sell the Property
Homeowners with sufficient equity can list their property
with a qualified agent that understands the foreclosure process in
If a homeowner owes more on their property than it is
currently worth, then they can hire a qualified real estate agent to
market and sell their property through the negotiation of a short sale
with their lender. This typically requires the property to be on the
market and the homeowner must have a financial hardship to qualify.
Hardship can be simply defined as a material change in the financial
stability of the homeowner between the date of the home purchase and the
date of the short sale negotiation. Acceptable hardships include but
are not limited to: mortgage payment increase, job loss, divorce,
excessive debt, forced or unplanned relocation, and more.
This represents only a summary of some of the solutions available to homeowners facing foreclosure.
Understanding your options now could mean all the difference in the world!
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