How to Avoid Foreclosure and Stop the Foreclosure Process

The thought of looming foreclosure causes severe stress and anxiety to many homeowners caught behind the eight-ball, due to unemployment, decreased income, increased expenses, divorce or separation, and other financial hardships.

Most homeowners in distress, however, do not realize, or do so too late, that there are many foreclosure alternatives available to homeowners in Maryland and nationwide. It is essential for anyone caught in a difficult financial situation and not able to keep their mortgage current to consider their options with the assistance of an attorney, financial advisor, Realtor, and even their loan servicer.

Below is a brief explanation of some of the common ways to prevent foreclosure. For more detailed analysis of your options, contact us directly for a free, no obligation consultation.

Alternatives to foreclosure: Home Retention

Refinancing: Depending on your situation, you may qualify for one of the new, government authorized refinancing programs which allow homeowners to refinance over-leveraged homes at lower interest rates thus reducing the overall monthly mortgage obligations. This option may work for someone who saw a slight decrease in their pay and at the same time the value of their homes decreased below mortgage balance.

Repayment Plan: If you were unable to make your mortgage payments for few months due to, for example, unemployment and now have a new job, your lender may allow you to repay the missed payments over a certain period of time until you’re fully caught up.

Reinstatement: If you fell behind on your mortgage and are now able to bring yourself current, your lender will consider reinstating your loan once you pay back the missed payments and fees.

Forbearance: Depending on the hardship, your lender may suspend or reduce your mortgage payment for a period of time allowing you to get back on your feet. Once you’re there, your lender may ask you to repay the full amount owed via a lump sum payment or increase your normal monthly payments until you bring the loan current.

Claim Advance: If you or your lender is paying mortgage insurance on your loan, the mortgage insurance company may provide you with a cash advance to bring your loan payments current. These funds may be interest free and might carry with them a long repayment period.

Loan Modification: this is a permanent change in at least one of the terms of your original mortgage agreement. Your lender may reduce your interest rate, decrease your principle balance, or tack on the missed payments to the back of your loan. This option may be right for those homeowners who do not anticipate significant improvement in their financial situation over the long term.

Alternatives to foreclosure: Home Liquidation

Sell Your Home: Provided that you have equity in your home, you may be able to sell it and pay off your lien holders in full and cover any transaction costs such as closing costs and real estate commissions.

Assumption: If your loan is assumable, a qualified purchaser might be able to take over your payments after you sell them the home. Beware of companies promising to take over your payments if you sign over the home to them. Assumption process is a formal one that needs to be followed to the tee and under a guidance of an attorney or a real estate professional you trust.

Short Sale: If you owe more on your home than the property is worth, your lender may allow you to sell your property and potentially itself absorb the shortage of the loan.
Doing a short sale is considered by many real estate professionals to do less damage to your credit history than foreclosure or bankruptcy. There could be, however, tax implications stemming from a short sale. All potential short sale candidates should consult a tax professional or an attorney as well as read the guidelines for the Debt Relief Forgiveness Act of 2007.

Deed-In-Lieu of Foreclosure (DIL): This concept is also known as a voluntary foreclosure. If you and your lender agree that no other alternatives are available, your lender may ask you to sign over the property to them in return for them potentially cancelling the remaining portion of the debt.
There are still potential tax consequences stemming from debt forgiveness and giving the nature of the transaction and subsequent sale by the bank, the shortage amount maybe significantly higher than during a short sale or other liquidation methods. Please consult an attorney prior to taking this option.

Foreclosure: Walking away from your home or not doing anything to prevent foreclosure should be your last resort. The negative ramifications of foreclosure on credit history, future borrowing, overall stress levels, and the neighborhood itself are very high. The great thing is that, with today’s foreclosure avoidance possibilities, foreclosure can be avoided or delayed.

If you are facing foreclosure and would like to know which one of the above alternatives is right for you,
contact us for a free, no obligation consultation. We will assess your situation and put our contacts and experience to work for you.