Fighting
Foreclosure: 8 Ways to Dodge Delinquency
The sharp rise in foreclosure
activity in recent months does not paint a pretty picture for distressed
borrowers: Foreclosure activity was up 112 percent in the first
quarter of 2008, according to RealtyTrac.
Option #1: Renegotiate
with the lender
Step one is to contact
your lender as soon as you know you cant make a payment. The
faster you move the more options youll have to fix your financial
future. Borrowers may have the option of renegotiating their loan
with the lender. Try to negotiate a plan that will enable the loan
to be back in service. Lenders dont want the property back;
they want to keep their loan portfolio full of performing loans
not defaulting loans. Lenders say that the sooner they hear
from a delinquent borrower in trouble, the easier it is to negotiate
a solution.
Option #2: Reinstatement
Prior to a foreclosure
sale, borrowers have the right to reinstate a delinquent loan. The
reinstatement option gives homeowners the opportunity to make up
back payments plus any incidental charges incurred by the bank such
as filing fees, trustee fees and legal expenses. Paying off the
reinstatement amount will cancel the foreclosure and enable the
homeowner to continue to live in the home as if no default occurred.
For many delinquent borrowers, however, reinstatement is not an
option because they are deep in debt and cannot make up back payments,
plus other expenses. Consult with a real estate attorney or an experienced
real estate broker because reinstatement laws vary from state to
state.
Option #3: Forbearance
One of the most overlooked
foreclosure options a borrower has is forbearance. Forbearance is
the postponement for a limited time of a portion or all of the payments
on a loan in jeopardy of foreclosure. Partial or full payment waivers
had their origins in the Great Depression. A lender expects that
during the moratorium period the borrower can solve the problems
be securing a new job, selling the property or finding some other
acceptable solution.
Depending on your lender,
you may be able to restructure your loan. For example, delinquent
mortgage payments may be added to the backend of the borrowers
scheduled payments or the borrower could be given more time to bring
the late payment current. Some mortgage companies are able to arrange
a repayment plan based on your current financial situation. You
may qualify for this option if you recently lost your job. Call
your lender and inquire if you meet the requirements for forbearance.
Option #4: Redemption
To redeem a loan, the
borrower must pay off the loan in full. Borrowers may accomplish
this by refinancing (with a family member cosigning perhaps) or
by a friend or relative bailing out the borrower in exchange for
equity or some other financial arrangement. Again, redemption rights
like reinstatement rights vary from state to state.
Most states permit redemption up to the foreclosure sale.
Option #5: Sell the
Property
For owners who dont
care to save the property, or who have no other choice than to let
the property go, selling the property may be a smart choice. If
you have enough equity in the house to allow you to pay off the
mortgage in full, then a sale is usually your best option. This
option preserves your equity and whats left of your credit
score. Selling also leaves you in a much better financial position
should you want to buy another home in the future. Even if you dont
have equity, you may be able to arrange a short sale, where the
bank agrees to forgive the mortgage debt for less than the total
amount owed on the mortgage if you sell the property to a third
party. The advantage to the lender is that it does not have to deal
with costly foreclosure proceedings.
Option #6: Deed in
Lieu of Foreclosure
For homeowners who have
no opportunity to reinstate, redeem or even sell their property
and just want out of the property, a deed-in-lieu of foreclosure
may be viable option. Essentially, a deed-in-lieu of foreclosure
is a transfer of title from a borrower to the lender, which the
lender accepts as full satisfaction of the mortgage debt. With this
option, you as a borrower voluntarily give back your
property to the mortgage company. You wont save the house,
but you do avoid the trauma of foreclosure and reduce the negative
impact on your credit.
Option #7: Bankruptcy
Filing bankruptcy is
not a permanent cure for foreclosure, but it can temporarily halt
the foreclosure process. Once a borrower in default files a petition
for bankruptcy, foreclosure proceedings stop immediately. A homeowner,
however, must hire an attorney in order to file bankruptcy, which
can be expensive. Before considering this option, a homeowner should
consult a real estate attorney.
Option #8: Foreclosure
Allowing the foreclosure
to proceed to the auction is generally the worst choice. By doing
nothing, homeowners will lose their home and any equity they have
earned. Plus they will damage their credit at the same time. Moreover,
some states allow lenders to go after borrowers in court for any
deficit between what the house eventually sells for and what the
homeowner owes. This is called a deficiency judgment. Unfortunately,
many homeowners chose this option, putting their heads in the sand
and hoping theyll win the lottery and avoid foreclosure.
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