Top 10 Alternatives When Facing Foreclosure

Top 10 Alternatives When Facing Foreclosure

Short Sale Solutions

You may be facing foreclosure … so what are your options? Try to look at the situation more from a financial standpoint rather than an emotional standpoint. This way you can more successfully analyze which option might best suit your needs and desires to move you towards resolving your financial difficulty. One very important thing to remember: Time is of the essence. Take time to think through your situation and make a decision. Then, take action right away so you have enough time to complete the solution you choose.

Ten Options When Facing Foreclosure

  1. Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt.
  2. Reinstatement – Paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
  3. Loan Modification – Utilizing the existing mortgage company to refinance or restructure the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment.
  4. Forbearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
  5. Deed In Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payments and taxes must be current. This is not typically an option if there is a second mortgage or other liens. Most loan applications ask if this has ever happened. It typically has the same effect on your credit as a foreclosure.
  6. Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.
  7. Rent out the Home – This can be a viable option if the rent payments collected are enough to cover the mortgage payment (plus taxes & insurance).
  8. Bankruptcy – This option can liquidate debt and/or allow more time.
  • Chapter 7 (Liquidation) To completely settle personal debt.
  • Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
  • Chapter 11 (Business Reorganization) A business debt solution.
  1. Do Nothing = Foreclosure – If a homeowner does nothing they most likely will lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Not the best option.
  2. Sell the Home / Short Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid), the homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property’s value. This option keeps the homeowner in control, and is a much better alternative than foreclosure and has less impact on the seller’s credit score.

You have several options available and there may be more than is listed here. Please consult an Attorney and CPA or other professional as to the best option for your particular situation.

Top 10 Alternatives When Facing Foreclosure

Short Sale Solutions

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