When Is Foreclosure the Best Option?
There are a number of situations where foreclosure is going to be the best option to pursue, from the lender's standpoint and the debtor's view as well. If a debtor is out of work for a substantial period of time, with no job prospects and no source of income, a lender may want to consider foreclosure. Whenever all other alternatives have been exhausted and considered, without a viable solution, foreclosure may be the only option.
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Deed in Lieu
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One of the alternatives to foreclosure is a deed in lieu of foreclosure. This is a process where the ownership of your home is turned over to the lender. It is up to the lender to attempt to sell the home since the lender is now the owner. The lender may pursue you for the deficiency balance if the home is not paid off from the proceeds of the sale. If the lender, for whatever reason, decides against the deed in lieu of foreclosure, the borrower may want to let the lender proceed with foreclosure proceedings.
Loan Modification
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If debtors are facing foreclosure, they may want to consider a mortgage loan modification. Under the terms and agreements, debtors are able to negotiate a lower rate of interest along with a reduction in the principal loan balance. This will help lower the mortgage payments and make them more affordable.
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Short Sale
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The borrower may consider a short sale, which must be approved by a lender. Some lenders will not approve short sales if they feel it is not advantageous. A short sale is when the lender and borrower agree to sell the home for less than the amount owed. The borrower, in many cases, will be liable for the deficiency balance after the sale.
Foreclosure Moratorium
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A foreclosure moratorium is when the foreclosure process has been delayed for a specific period of time, such as 90 days. If a moratorium has ended and the debtor and lender have not been able to resolve their situation, the lender may start to foreclose on the property. A moratorium gives a debtor time to review the situation and examine all possible solutions to prevent foreclosure. Sometimes a moratorium simply delays the inevitable.
Bankruptcy
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Debtors may even consider bankruptcy. Even with a bankruptcy, whether it is a Chapter 7 or Chapter 13, debtors must continue to make payments on loans that are secured, such as a mortgage, if they want to keep the property. A bankruptcy will not wipe out a lien on property such as a mortgage. Lenders can still foreclose on the property. If debtors were looking to save their property, bankruptcy is not the option to pursue without a source of income.
Equity
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When the value of a home decreases substantially, it may be in the best interest of the homeowner to let the home go through foreclosure proceedings. The amount owed on the home may exceed the value, which means there is no equity in the property.
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