Everyone’s worst nightmare is learning that by being unable to pay their monthly mortgage, their house will soon be up for foreclosure. If you are one of the thousands of desperate homeowners falling behind mortgage payments, it is important that you know your options, understand what you need to do and prepare for what will happen in the following months.
In order to prevent your homes in foreclosure, owners have several options before investors, homebuyers and other people line up to buy your home. The first thing that homeowners in default should do is contact their lender every time you can’t make a payment.
Although not many people choose to ask their lenders for help, a lot of borrowers are surprised that they can renegotiate their loan with the lender. This is extremely helpful because you are taking control over the situation and it shows that you have a plan to keep the loan back in place. Borrowers may not be aware of this, but lenders are not interested in getting your property back. Instead, they simply want borrowers to complete their payments so that the lender can maintain a portfolio filled with non-defaulting loans.
Before a foreclosure auction, every borrower has the right to reinstate his or her delinquent loan. By reinstatement, borrowers can make up for missed payments and any charges incurred by the bank during the foreclosure process. Reinstating a loan can cancel the foreclosure and allow the homeowner to live in the property as if no default ever occurred.
Another option is forbearance or the postponement of all payments for a limited time. While some mortgage companies can restructure your loan, others provide a repayment plan based on the borrower’s current financial situation. However, during this period, the lender expects the borrower to secure a job, sell the property or find a solution to his or her financial problem. Unfortunately, not everyone can meet the requirements in filing for forbearance, so make sure to call your lender and ask about this option.
Every borrower also has the right for redemption. In order to redeem a loan, the borrower should be able to pay the loan in full, whether through refinancing or other financial arrangements. Be aware that redemption rights vary from state to state; while most states allow redemption until the foreclosure auction, others only provide a limited time.
Selling the property is probably one of the smartest options for people troubled with foreclosure, especially if the homeowner has no reason to save the property. By selling the property before it becomes a repossessed home, you preserve your credit score and equity, giving you a better financial rating if you wish to buy another property in the future.
On the other hand, if you have no interest of reinstating, redeeming or selling your home, a deed in lieu of foreclosure offers you an easy way out of your foreclosure problem. With this option, you voluntarily give back the property to the mortgage company. Although you won’t be able to keep your house, you can save your credit score for future use.
The two last options – bankruptcy and simply doing nothing – can both damage the borrower’s credit and lose any equity earned. Although filing for bankruptcy can stop the foreclosure process immediately, borrowers will have to hire a real estate attorney in order to file for bankruptcy.
If you are sure you can’t make this month’s mortgage payment, make sure to figure out a plan and understand your options. However, be aware that these options are not for everyone and making the right choice depends on individual financial situation and current priorities.