During 2009, 1 out of 84 homeowners received at least 1 foreclosure filing – and for the fourth straight month, over 300,000 foreclosure filings were filed nationwide. Foreclosure filings are becoming more and more common and unfortunately, with the current economy, the situation could get worse. Job losses and health crises are the two most common reasons for foreclosure filings, according to the FDIC – and because people might not be able to make any money when they sell their home, foreclosure often seems like the only way out. However, there are some options available to homeowners that are facing foreclosure – and some of these are outlined in more detail below.
A Short Term Loan
Most homeowners in foreclosure are in that situation because they have no savings and no available credit – and because they might not be able to pay their mortgage and because the homeowner might not be able to catch up with the loan, there’s a reasonable expectation that they have to go into foreclosure. However, if you think you might get a job within the next few months, or if you believe that your health might improve, allowing you to go back to work, it’s important that you let your loan company know. They may be willing to wait for a set period of time before you have to start making repayments. Another alternative is to seek a short term loan from family and friends to tide you over until you’re back in employment or back at work – that way, you’ll get to keep your home and although you’ll owe some money to a family member, you won’t be getting involved with a potentially dodgy loan shark.
Speak to Your Mortgage Lender
According to a Freddie Mac report, many homeowners are a little bit wary of contacting their mortgage lender for fear of embarrassment or for fear of being made to pay the loan back more quickly – but if you contact your lender, you may be able to modify your loan so that you pay less in interest, the overall loan amount or in your overall monthly repayments. Unless you have experience dealing with the loan mitigation department with your mortgage lender, it’s a good idea to deal with a trusted loan mitigation company to contact the lender on your behalf. 41.85% of loan mitigation requests do result in reduced payments, so it’s definitely worth a try – but keep in mind that if you have no money coming in and no potential for money to come in within the next few months, this may not be an option for you.
Forbearance might be an option for you if you have reasonable expectations of revenue coming in within the next few months or if you expect your health to improve to the extent that you’ll be able to go back to work. Some mortgage lenders will allow you to delay your mortgage repayments until you can reasonably expect to pay them back, while others might allow you to spread your payments over a set period of months until you’ve caught up on your missed payments. However, this option will only really work if you can demonstrate that either your health is improving or that you’re going to be receiving some money within the next few months. This process does mean that you’re likely to have a negative mark against your credit, even if you make larger repayments than you had been previously. The bank might also be allowed to immediately foreclose on the property should you fall back on your repayments again and so this is only an option that should be considered if you know that you can genuinely keep up with payments.
Deed in Lieu of Foreclosure
In some situations, you might be able to ask your bank or mortgage lender to accept the deed to the property rather than continue with the foreclosure process. In exchange for this, the bank promises not to go ahead with the foreclosure process and to cancel any foreclosures that are currently in progress. In this situation, the lender would agree to cancel the loan in exchange for your home. The only issue with this route is that many banks already have a lot of properties on their books and really, they want money, rather than houses. It might also state in your mortgage contract that should you default on your payments, the bank can only recoup the money through the process of foreclosure. If this is the case, handing the bank the deeds to the property may not be an option, but it’s always worth a try. This might also be a better option for your credit report as it doesn’t involve bankruptcy or any county court judgements.
Negotiate a Short Sale
A short sale is another option for homeowners facing foreclosure whereby a third party negotiates with your mortgage lender in order to accept a discount on the money that is owed and to release the interest in the property in exchange for a direct monetary payment. However, in this situation, the homeowner is not allowed to benefit from the sale and you’ll also have a negative impact on your credit score. You also might not be able to buy another property for up to two years, and this could be a problem if you are unable to rent for any reason or if you are unable to get a guarantor for a rental property. You’d have to ensure that you had somewhere to stay – and you might also be sued and taxed, unless you were working with a reliable realtor investor.
Foreclosure and bankruptcy are your worst options when it comes to dealing with a foreclosure, in terms of your credit score and your ability to get credit in the future. For more help and advice, speak to a financial advisor.