Facing foreclosure? Here are 5 tips to limit or avoid foreclosure, Online Advice
Here Are 5 Tips To Limit Or Avoid Foreclosure
24 Feb 2021
When it comes to foreclosure, the rules differ from one state to another. However, the most essential tip is to be proactive since procrastination won’t make your mortgage concerns go away.
5 Tips To Avoid Foreclosure
Fortunately, there are many ways to avoid or limit foreclosure, and below are some of the tips you can take into consideration:
- Consider Short Sales
If you can’t make payments on your home and you think that your home is at risk of foreclosure, you must hire a lawyer to guide you through the short sales process. Keep in mind that the procedure of renegotiation of your debt is a bit complicated and tricky. Typically, it requires you to submit some forms about your home, which may include broker opinions and appraisal documents, among many others.
For most investors, short sales are an opportunity, especially for those who want to purchase a home as an investment and at lower prices. However, short sales take a long time to complete. There are also some possible approval requirements from the higher-tiered lien holders. So, if you wish to avoid foreclosure, you might want to sell a house fast through cash home buyers instead.
- File Bankruptcy
Another tip to avoid or limit foreclosure is to file for bankruptcy. The best thing about it is that it won’t alter your mortgage’s terms, but if you’re facing foreclosure, the process may help. You still need to remain current with your mortgages after you file for bankruptcy; you can pay back your arrears with the help of your bankruptcy plan. It means that you’ll be given three to five years to pay.
In addition to that, filing for bankruptcy immediately can stop the process of foreclosure. This is as long as you make up for the arrears and stay current with all your payments. If you do these, your lender can’t foreclose your property.
You can also strip off your junior mortgages, which means that such loans can be part of your unsecured debt that you pay back at a minimized rate through your plan. Then, your second and third mortgages won’t be attached to your property, which will make it much easier for you to avoid payment issues in the long run. Once the bankruptcy process is done, you’ll be able to start fresh with only one mortgage.
- Try To Refinance
You can consider refinancing your home if your mortgage balance is less than or near your home’s worth in the current market. You can even get low-interest rates, low monthly payments, skip payments, or even get some cash once you close the refinance transaction. Work with a reliable mortgage broker and contact a representative at your lender.
Several lenders may do more just to get you into a new loan with them than they would modify your loan. Other governmental, nonprofit, and alternative lenders also provide refinance mortgages of homeowners.
- Loan Modification Can Be Your Option
Basically, loan modification means that your mortgage repayment terms are changed permanently, which makes it easier to lessen your payment every month to a more affordable amount. Regardless of whether the modification is structured to reduce the borrower’s principal obligation or interest, or extend the loan’s terms, everything depends on how qualified the borrowers are under the regulations of Housing and Urban Development (HUD).
The tough part is qualifying for loan modification and understanding how it works. It’s usually considered a more preferred option to foreclosure since it keeps the homeowner in their property and allows partial payments to continue flowing.
The entire process is a bit challenging to navigate, so it’s better not to do it alone. The reason behind it is that government officials may be frustrating and you might have your hands full when trying to rearrange your finances. If wrong information is provided in your loan modification or if you get an adjustment but can’t make payments, it could complicate your case and you might lose your house.
One of the examples of a loan modification is lease-option. These days, most loans are no longer considered assumable. The average mortgage typically contains a clause for due on sale, in which borrowers agree to pay the loan entirely when they transfer the house.
But, if you’re facing foreclosure, you could persuade your lender to modify your loan and get rid of this clause, and let another buyer take your loan. Lenders may evaluate the qualifications of the new buyer, but it’ll be a win-win for everyone. You could also negotiate a down payment from your buyer, which you may use when paying off your outstanding previous due mortgage balance.
- Consider Deed In Lieu
Homeowners facing foreclosure voluntarily sign the deed to the property over to the bank. It may be a great option for some, but it has a big impact on the homeowner’s credit like foreclosure does.
Lenders are quite reluctant to agree to take a property back through the deed in lieu of foreclosure. One of the reasons behind it is that they fear that the homeowners may sue later, alleging they didn’t know what’s happening and the lender has to pay the mortgages before executing the deed in lieu. Another reason is that lenders want to be certain the financial distress of the borrowers is real. Letting the foreclosure process to proceed is the way lenders can be sure that the borrowers aren’t faking poverty.
For those reasons, deed in lieu isn’t granted unless the owner had their home on the market for a few months and was unable to get it sold, foreclosure is imminent, and there are no junior or few loans the lender will need to pay off. But, there are instances when even if all of those factors are present, some lenders won’t agree to a deed in lieu. However, there’s nothing wrong with giving it a try.
During foreclosure, ensure that you understand all your options before you set your plan of action. If possible, seek legal help when reaching out to your lender. This will also help you understand your foreclosure rights and be aware of the other options suitable for your foreclosure problems.
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