Alternatives to Foreclosure

Foreclosure is the legal process for your mortgage lender to sell a property to satisfy a defaulting borrower's dept secured by the property. Foreclosure can take quite a toll on homeowners both financially and emotionally. Depending on your circumstances, foreclosure may force you and your family out of your home, damage your credit, increase your tax liability, and expose you to other personal liability.

1) Loan Workout

If cannot pay your mortgage you should contact your lender immediately to see if they will work with you. Your lender may agree to a temporary solution to your problem where they may let you reduce or suspend you loan payments temporarily or provide some other plan to temporarily allow some relief.

2) Loan Modification

You should contact your lender immediately even if your financial difficulties are severe or long term- such as job loss, divorce, medical issue or some other legitimate financial crisis. Your lender may agree to modify one or more of your loan terms such as reduction of interest rate, a reduction of your loan balance, an extension of your term to 40 years, or other terms that would make your payments more affordable. You lender may participate in the US government's Home Affordability Modification program which gives incentives to both lenders and borrowers for modifying certain problematic loans. Go to Making Home Affordable to get more information about this government subsidized program.

3) Short Sale

There is another way to handle a distressed loan is to sell the property for less than is what is owed. Selling may be challenging if you are upside down on your mortgage. Your lender may agree to voluntarily accept a loan payoff of less that what is owed. As with foreclosure, a short sale may affect your credit, tax liability, personal liability, and pose other challenges. With a short sale you can avoid the stigma of a foreclosure. Doing a short sale allows you to take a proactive approach to dealing with your situation, rather than going through the agonizing foreclosure process. You can learn more about the short sale process by clicking some of the links at the left. If you have any questions about what it takes to get a short sale done, please call us to set up an appointment.

3) Refinance

If you cannot complete a loan modification or some kind of workout with your lender, you may still be able to refinance your loan with your current lender or some other lender. Your situation may be different but some obsticles to refinancing distressed loans can be a low FICO score, low appraisals, and/or lack of income and depends on your specific situation. You may be able to qualify for assistance through the federal Home Affordable Refinance program for up to 125% of the homes value if you currently have a Fannie Mae or Freddie Mac mortgage. You might be able to qualify for the Hope For Homeowner program for FHA-insured fixed rate refinance up to 96.5% of the property's value (other terms apply.

4) Deed-in-Lieu of Foreclosure

IA Deed-in-Lieu is a voluntary agrement between you and your lender to give the title of the property back to the lender in full satisfaction of the loan secured by the property. Your lender may like a Deed-in-Lieu because the bank would not have to spend time and money on a foreclosure. A Deed-in-Lieu of Foreclosure has some tax liabilities and it is recommended that you talk to a tax or real estate accountant to see how this would affect your own specific financial situation.

5) Bankruptcy

Bankruptcy is a federal court proceeding for settling your depts with creditors under a judges supervision. If you face foreclosure, the filing for bankruptcymay provide a temporarily "stay" of the foreclosure proceedings. If you file for Chapter 7 Bankruptcy, the court at some time may lift the stay and allow the lender to resume the foreclosure. If you file for Chapter 13 protection, you may be able to keep your property but you must repay the over due amounts in a 3 to 4 year plan- along with regular mortgage payments (which is sometimes hard to do). Again, it is recommended that you talk to a tax accountant for advice on your own personal situation.

6) Other Alternatives

You may able to borrow money from family or friends. You may be able to supplement your income by renting out a room or getting a second job. If you own a struggling small business, your business may qualify for a deferred payment, interest free loan from up to $35,000 from the US Small Business Administration - America Recovery Capital.