Foreclosure Alternatives

Foreclosure Alternatives

Foreclosure alternatives are important to consider if you value your credit rating.  If your lender is about to foreclose on your home the worst action you can take is no action at all.  There are better alternatives than letting the bank foreclose on your home.  Consider the following solutions and determine which is the best possible solution for your situation.
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Reinstatement
Sometimes it is possible for a homeowner to use this alternative.  It requires getting caught up on past payments, plus any fines and fees.  Generally, your lender will be willing to work with you to reinstate the mortgage right up to the time of the foreclosure sale.
  • Pros: Keep your home and repair credit damage quickly.
  • Cons:  This requires you to pay all late payments and any fines or fees.  Most borrowers would not be at this point if they could have made their mortgage payments on time.  Reinstatement is usually more difficult.
Forbearance
Similar to reinstatement but gives you more time.  You may be able to negotiate with your lender to repay late payments over a period of time.  Essentially, this means you now have 2 monthly mortgage payments.
  • Pros:  Allows you to catch up on late payments over time.
  • Cons:  Regular mortgage payments + extra payments = Higher payments.   Your lender may require documentation to approve such an action.  If your situation has not improved, the lender may be unwilling to offer you this option.
Loan Modification
If your lender is agreeable, you may be able to negotiate the terms of your mortgage to reduce the interest rate, term of the loan, principal balance of the loan, or any combination to produce a more affordable monthly payment.
  • Pros:  Lower monthly payments you can afford.
  • Cons:  Requires a willing lender and much documentation to determine if you qualify for the new payment.  Many homes have lost much of their value since 2007.  Homes worth less than the required new mortgage would not qualify.  Compared to the vast number of applicants for this remedy, loan modifications are rare.
Deed in Lieu of Foreclosure
Your lender may agree to stop the foreclosure process in exchange for the surrender of the deed to your home.  This means you would have to vacate your home upon approval.
  • Pros:  An easy and fair solution if your lender is willing, but only if the lender will waive their right to a deficiency judgement.
  • Cons:  The deed in lieu may be reported as a foreclosure to credit bureaus.  This would cause much damage to your credit rating and ability to obtain another mortgage for 5 years.  A second or third mortgage, home equity loan, tax lien, condo lien, or any other lien will usually make this approach impossible.
Bankruptcy
Bankruptcy is not a good alternative solution to foreclosure in almost every case.  You will have to liquidate any assets you have to satisfy creditors.   It does not stop the foreclosure.  It will damage your credit scores for seven years. It will be very costly and leave you with far less assets than other successfully negotiated plans.   Bankruptcy can only be declared once every seven years.
  • Pros:  Fresh start; no deficiency judgements or taxes.
  • Cons:  Liquidation of assets and massive damage to credit scores for seven years.
Short Sale
When an homeowner owes more on their home than what it is worth it requires and qualified real estate agent and a willing lender to to sell the property through a process known as “short sale”.  To qualify, the borrower must prove to the lender that he has a financial hardship.  This is one of the best foreclosure alternatives available for those who are unable to make their mortgage payments but want to maintain good credit.
  • Pros:  Avoiding foreclosure will benefit the homeowner in many ways-less damage to credit ratings, credit repair in 1-2 years, may qualify for another mortgage in 24 months as compared to 5 years for a foreclosure (this could be a huge advantage), no deficiency judgement in successfully negotiated agreements, mortgage forgiveness debt relief, no public record, and more…
  • Cons:  Could be a stressful process unless you use a qualified real estate agent .
Foreclosure Alternatives Specialist
Real Estate Professional for 35 years.
You probably have lots of questions that weren’t addressed in the article above. If you live in the Naples Florida area I’d be glad to discuss your situation and describe the process of a short sale in further detail.  If you are late on your mortgage payments don’t wait any longer to get answers.  Time is of the essence.

239-877-2325
Gulf Region Realty