Ways to Avoid Foreclosure
It is a sad fact that 1 in 7 homes in the US is under water (owe more than the house is worth) and that 1 in 4 (25%) are in default on their mortgage. While we are climbing out of the overall housing crisis of the last few years, we are projected to be only halfway through the foreclosure crisis.
With the statistics being what they are, it is likely that if you aren’t facing distress in regard to your mortgage, you know someone who is. Many people think that foreclosure is inevitable and their only option, but in many cases there are alternatives.
1. Reinstatement of the Mortgage: if you have missed temporarily for reasons that have been resolved, then you have the option to reinstate the mortgage. This does involve paying all missed payments, late and legal fees, but if you have recovered financially or found a source to finance this, it can be the best solution. Unfortunately, most people don’t find themselves in this kind of recovery.
2. Forbearance or Re-Payment Plan: if the issue that caused missed payments was temporary, but you are unable to make a one-time reinstatement, you may be able to negotiate a forbearance or re-payment plan with your lender. This allows the missed amount to be repaid over a period of time. Sometimes the missed payments are scheduled on the end of the loan amortization.
3. Sell the Property: if you have equity in the property, you can sell it and used the funds from your equity to cure the foreclosure.
4. Rent the Property: In a few cases, the homeowner facing foreclosure will have payments low enough to allow renting the property for enough to keep up the mortgage payments.
5. Mortgage Modification: this is similar to a re-finance in that you must qualify by showing proof of income and expenses, but a loan modification can result in lowering the payments and/or lowering the principal balance due on the loan.
6. Short-refi: involves the refinance of a home with a reduction in the principal balance and often the interest rate as well. You must qualify for this process in showing both a hardship as well as the ability to pay the new mortgage.
7. Short-Sale: occurs when the homeowner owes more that the property is currently worth. If one of the above solutions doesn’t apply for you, then a short-sale is a very positive alternative to foreclosure. In a short-sale, the home is sold with the lender agreeing to take less than the outstanding loan amount due (hence the term “short” sale). The owner walks away with no proceeds, but your debt is also forgiven. A foreclosure has much more severe credit repercussions as well as tax and deficiency liability (see future Blog on Short Sale vs. Foreclsoure).
If you or someone you know is in financial distress, contact a Certified Distressed Property Expert (CDPE) Realtor® to discuss your options. If you aren't in the Asheville area, I can find a qualified agent wherever you are.
I'm happy to discuss Foreclosure Alternatives with you!
Margaret
email me or call: 828.216.2300
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