Slipping toward foreclosure can lead to feelings of anxiety, depression, and loss of self-esteem. Don’t give up. There are options available to help millions of homeowners rescue themselves from the brink and avoid foreclosure. Since it is crucial to act before a foreclosure takes place, now is the most important time for you to review the following options and solutions.
As a Certified Distressed Property Expert (CDPE), I am trained in assessing all foreclosure alternatives and pursuing the best solution for your own financial situation.
10 Options That May Help You Avoid Foreclosure
1. Short Sale
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.
A trained real estate agent can negotiate a short sale with your lender if you have three qualifications. First, you must show some type of financial hardship. Second, you must have a monthly shortfall, meaning your monthly expenses are greater than your monthly income. Finally, you need to prove that your debts are greater than the value of your assets (certain investments, property, etc.).
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.
- Benefit: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual’s public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to five years for a foreclosure).
- Drawback: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.
A reinstatement is the simplest solution to avoid foreclosure, however it is often the most difficult for homeowners to achieve. The homeowner simply pays the total amount past due (including late fees) to the lender. This solution does not require the lender’s approval and will “reinstate” a mortgage up to the day before the foreclosure sale.
- Benefit: Does not require the mortgage company or lender’s approval.
- Drawback: Requires that a homeowner be able to pay all back payments, fines and fees.
3. Forbearance or Repayment Plan
A forbearance or repayment plan involves negotiating with the mortgage company to allow the homeowner to repay back-payments over a period of time. The homeowner typically makes current mortgage payments in addition to a portion of the back-payments owed. This option requires lender approval.
- Benefit: Allows the homeowner to make back payments over time.
- Drawback: Requires that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies will require a homeowner to ‘qualify’ for forbearance.
4. Mortgage Modification
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 changes require lender approval and typically result in a lower payment for the homeowner and a more affordable mortgage.
- Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
- Drawback: Requires that a homeowner ‘qualify’ for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.
5. Rent the Property
This option does not require lender approval, but does require the homeowner’s ability to rent the house for enough money to cover the monthly mortgage payment.
It is important to remember that there may be unexpected costs associated with the maintenance of a rental property in addition to the monthly mortgage payments. Homeowners should take this into consideration when deciding whether this is the best option for them to avoid foreclosure.
- Benefit: Allows homeowner to keep property indefinitely.
- Drawback: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.
6. 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 to avoid foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property. Deed-in-lieu can potentially lessen the damage to a credit score and future loan eligibility, and sometimes the lender will forgo their right to pursue a deficiency judgment, meaning the homeowner will not be responsible for further payments.
- Benefit: Many times in a successful deed in lieu, the lender will forego their right to a deficiency judgment.
- Drawback: Requires that a homeowner vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.
Many have considered and marketed bankruptcy as a “foreclosure solution,” but this is only true in some states and situations. This does not require lender approval, but you must have non-mortgage debts that you claim as a hardship.
Entering bankruptcy can be a risky and costly process. Be sure to seek the advice of a qualified bankruptcy attorney when pursuing this as an option to avoid foreclosure.
- Benefit: Does not require lender approval.
- Drawback: If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall — not stop — the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.
As opposed to mortgage modification, refinancing means you will be acquiring a new loan based on your current credit standing. If you have already missed mortgage payments, your credit score may make it difficult to find a loan with cheaper payments.
- Benefit: In some cases, this will lower payments.
- Drawback: In today’s market, a refinance will almost always raise mortgage payments, and is an expensive process.
9. Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent who understands the foreclosure process in their area. Unfortunately, many homeowners in today’s market have experienced a decline in home value and may owe more than what the home is worth.
- Benefit: Allows homeowner to avoid foreclosure and harvest some of their equity.
- Drawback: In many cases today, homeowners do not have sufficient equity to sell their property without negotiating a short sale.
10. 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 the debt was entered into prior to deployment — he or she may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers to help qualify them for this relief.
- Benefit: If qualified, this will lower payments on all consumer debt in addition to mortgage payments.
- Drawback: Must be active military to qualify.
This represents only a summary of some of the solutions available to homeowners facing foreclosure. Please call me today for a free confidential evaluation of your individual situation, property value, and possible options.
If you are on the edge, you have no time to waste. Call me today at 619-741-0111; I’m here to lend a hand in helping you avoid foreclosure.
Place Your Confidence in CDPE
With the right assistance, the stress of facing foreclosure becomes manageable. CDPE- designated agents have received the knowledge and training necessary to assess all possible foreclosure alternatives and pursue homeowners’ best options. A CDPE designated agent attends several days of intensive, thorough training on how to avoid foreclosure and how to negotiate short sales efficiently and ethically. The highly regarded CDPE logo means you are working with the most informed, up-to-date resource available.