There are few things more disheartening than losing a home to foreclosure. It occurs when a homeowner has failed to make payments to their mortgage lender. The lender will seize the property and then sell it to a new buyer to make up for their loss. Foreclosure will negatively impact the homeowner’s credit report for as much as 10 years. A homeowner may find themselves in this situation for many reasons. It can happen because of expensive medical bills, divorce whereas one person becomes responsible for the house payments, job loss, overwhelming debt, sudden relocation or other unexpected issues and expenses.
How to Avoid Foreclosure
There are strategies and tactics that homeowners can use to stop or slow down the foreclosure process. This can help them get back on track and maintain their credit rating.
- Sell your house to a cash buyer
Selling to a cash buyer may be a good option to avoid foreclosure. It will save you from all the hassle involved with the foreclosure process. Real estate investors will buy your house in its “as is” condition. The foreclosure can be stopped immediately once the home is in escrow and the sale process is completed. Selling your home to a cash buyer will save you from the negative effects to your credit score as is common with foreclosures. Also, investors often have credit repair specialist on their team to support clients through the process.
- File for Bankruptcy
Filing for bankruptcy is a legal action that can stop foreclosure process. In bankruptcy law “automatic stay” provision inhibits all creditor collection activity and temporarily stops foreclosure. Filing for bankruptcy negatively impacts your credit report but can help you save your house during foreclosure.
You can file for either chapter 7 bankruptcy or chapter 13 bankruptcy. Both will trigger “automatic stay” and give you time to figure out how to move forward with your home. Chapter 13 Bankruptcy is merely a reorganization or repayment plan of the debts whereas Chapter 7 Bankruptcy is a discharge of the debts.
- Deed-in-Lieu
Deed-in-lieu is an option when you are not able to restructure the debt or sell the home. However, it is not likely that one will be able to salvage any equity in this process. Here you transfer ownership to the lender by signing the deed over. Your lender forgives the mortgage and releases you from the obligation to make payments.
A deed-in-lieu of foreclosure can be beneficial to both a lender and the homeowner. It enables both parties to avoid the time and expense of foreclosure.
- Selling Through a Short Sale
If you are ineligible to repay or modify your mortgage, a short sale may be a good option for you. In a short sale, a homeowner sells the home through a real estate brokerage for an amount that is less than the outstanding mortgage debt.
In selling through short sale, you would ultimately lose your house, but without having a foreclosure. A short sale is typically less damaging to your credit rating than foreclosure.
- Changing the terms of your loan/ Loan Modification
You can delay the foreclosure process by requesting a loan modification. It includes changing the original terms of the mortgage through several methods. Changing the terms of your loan, like amount due, interest rate, length, will make your monthly payments convenient and manageable. As long as you keep up with the modified payments, foreclosure will be permanently stopped.
- Workout a Forbearance Plan
In a forbearance agreement, the lender agrees to reduce or suspend the payments for a certain amount of time. This provides a short-term relief to the homeowners until the situation improves. At the end of forbearance period, these deferred payments are calculated into a new repayment program.
If you want to consider any of the options mentioned above or, want to learn more about alternatives to foreclosure, consider talking with Realty With Rich. Realty With Rich provides solutions for difficult real estate transactions and there are never any fees associated with consultations.
The contents herein are not to be construed as legal, business, or tax advice, and each party that receives these materials should consult its own attorney, business advisor, and tax advisor as to legal, business, and tax advice