About Foreclosure Alternatives

Foreclosure is usually the last option that either a homeowner or a lender wants to exercise. To prevent this lengthy, difficult process from commencing, both parties will try to work out an alternative solution that will keep the homeowner in the house and the monthly mortgage payments in the lender's pocket. The two sides can only work together, however, if the homeowner is willing to reach out to the lender, government and other housing assistance programs to let them know he needs help.

Significance

Foreclosure is usually the last option that either the lender or the homeowner wants to pursue. In most cases, both the lender and homeowner would prefer to bring the loan current to avoid having to move out of the house or sell the house for an amount that could possibly be lower than the value of the current mortgage. To avoid this, most lenders and homeowners try to work together in an effort to settle on an alternative to housing foreclosure.

Alternatives

A homeowner has a few options that are likely better than allowing the home to slip into foreclosure. The most obvious method is paying the late mortgage payments until it is made current. Another option is to work out an alternative payment plan with the lender that will tack on a portion of the missed mortgage payments to future payments until the loan becomes current. There are also government assistance programs and non-profit organizations that assist homeowners in financially difficult times. Another popular option is selling the home before the bank enters it into foreclosure and using that money to pay back the past due loan amount.

Purpose

According to the Federal Housing Authority (FHA), communication is the best tool that can be used to avoid foreclosure. The FHA emphasizes that a homeowner must make contact with his lenders as soon as he suspects that he may not be able to make the monthly mortgage payment. This both shows the lender that you are a responsible borrower who is aware that the loan will become delinquent, but that you are proactively trying to avoid this from happening.

Reasons

People enter into foreclosure for a variety of reasons. Extra expenses, such as unforeseen medical bills, car repairs or other accidents and emergencies, can leave a family unable to make their mortgage payment. A lost job or a loss of wages due to illness or injury can also cause a family to fall behind. Many people also have their mortgage payments adjusted and find that they can no longer meet their monthly payment.

Time Frame

When a homeowner misses a mortgage payment, the lender will send a letter or phone the homeowner to make him aware that he has missed the payment. If the payment is missed for a second month in a row, the lender will continue to contact you by phone to discuss why you have missed the payments. If a third payment is missed the lender will send a "Notice to Accelerate," which informs the homeowner that he has 30 days from the date of the letter to make the mortgage current. If this notice is not responded to the lender will begin the foreclosure process and schedule a public sale. In order to avoid entering into the foreclosure process, a homeowner should respond immediately to any notifications the lender sends. The homeowner must respond to the "Notice to Accelerate" at the very least, however, to avoid foreclosure.

Resources

• More about foreclosure