Can You Legally Avoid a Foreclosure?

Losing a home to foreclosure is both emotionally and financially traumatic. A homeowner in danger of foreclosure can feel shame, worthlessness and fear. Knowing what the options are can ease a person's mind.

Keeping the Home

Consider whether it is feasible to keep your home. If you have fallen behind on some payments, but have the means to make future payments, it may make financial sense to keep your property and take the necessary steps to avoid foreclosure. However, if you foresee being unable to make future mortgage payments, it might be best to consider other options to get out of your home while still avoiding foreclosure.

Loan Modification

A loan modification can be the best resource for a homeowner who has fallen behind on payments but can make normal monthly payments moving forward. Explain your situation to a person in the lender's loss mitigation department. You may be eligible for a program that allows you to pay a little bit more per month on your mortgage payment to clear any prior delinquencies. This payment modification program can be spread over six to twelve months.

Refinance

If you have more than 20 percent equity in your property, refinancing might be an option. In a refinance option, a homeowner borrows against his equity to repay payment delinquencies and bring the account current. Discuss this option with a person at the lender's loss mitigation department.

Chapter 13 Bankruptcy

For homeowners on the verge of foreclosure and over their head in other debt, filing a Chapter 13 bankruptcy can stop foreclosure proceedings temporarily. Filing a Chapter 13 will enable a homeowner to place all his debts, including his mortgage, on a repayment plan overseen by the courts. This will force the lender to give the homeowner additional time in order to clear delinquent payments and bring the account current. However, if the consumer falls behind again, the lender could still foreclose.

Short Sale

A short sale is transferring ownership in exchange for less money than the balance due. A short sale requires the services of a real estate agent and approval by the lender of a settlement arrangement. A short sale can save the homeowner from foreclosure, allowing for faster financial recovery.

Deed in Lieu of Foreclosure

A deed in lieu of foreclosure works like a voluntary repossession. A homeowner with more than 20 percent equity, but is not in a position to keep the property, can voluntarily give it up to the lender. While the person will have to move out of the house and loses all rights to the property, it can be a better scenario than being foreclosed on and forcibly evicted.

Misconceptions

Many consumers believe that modifying, refinancing, or declaring bankruptcy will save their property indefinitely. In fact, these options will slow the foreclosure process, but unless significant steps are taken to clear out delinquent payments during these options, the lender can proceed with foreclosure.

References

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