The default in a mortgage payment can sometimes be unavoidable due to various circumstances. The homeowner might have lost their job or they might have spent their allotted mortgage payment on other pressing expenses. If the homeowner has missed several payments without contacting their lending company, they might have to face foreclosure.
However, there are several ways to avoid going through the foreclosure process. Even if the homeowner cannot actually pay the debt, they can still find ways to prevent the foreclosure of their home, since this would heavily impact their credit rating, and it prevents them from buying another property for the next 5 to 7 years. The debtor can also appeal for an extension of their payment schedule until they get back on their feet.
Read on to learn more about how you can stop foreclosure proceedings from pushing through if it happens to you.
1. Negotiate with Lender
Before any of the drastic foreclosure process begins, the homeowner’s first option is to talk to their lender. They can agree on the possibility of restructuring their debt. The homeowner can explain their circumstances and the reason why they defaulted on their payment, and the lender might provide the homeowner with certain allowances that would make the terms of the mortgage payment easier and more attainable.
2. File for Bankruptcy
If the homeowner does not have the means to pay for their mortgage and other debts, they can file for bankruptcy, so that the government can prevent their creditors from coming after them. Technically, the debt of the homeowner still exists, but it gives them the time to get back on their feet and find ways to pay their debt again. Moreover, the homeowner and the creditors should devise a reasonable plan that is beneficial to all the parties regarding the repayment of the existing debts.
3. Foreclosure Relief Programs
There are programs implemented by the government that help homeowners prevent the foreclosure of their homes, like the Making Home Affordable Program. This benefit is afforded to chosen homeowners who have defaulted on the payment of their mortgages, so that they can avoid foreclosure of their property. If the homeowner is unemployed, they can apply for the Home Affordable Unemployment Program or the FHA Special Forbearance, which provide assistance to the homeowner for up to twelve months.
4. Loan Refinancing
If it is possible, the debtor can look at taking out a second loan to finance the first loan they have missed. Since the remaining mortgage length is shorter and the unpaid balance is smaller, the monthly payment on the second loan could possibly be lower. The homeowner can look around for the best possible loan option, or they can ask their original lender if they can refinance the loan. It is vital to take care of all the paperwork before the actual foreclosure process begins to prevent the foreclosure sale from pushing through.
5. Lease Assumption
Another option that the homeowner can look at if they want to stop the foreclosure process is to have someone assume the lease. Tara-Nicholle Nelson describes the lease-assumption scenario in this manner: “In a lease-option scenario, the buyer becomes your tenant, and you continue owning the property until the buyer has saved enough down payment money, improved their credit sufficiently or sold their other home.”
She also provides tips on how to effectively use the lease-option to halt the foreclosure process: “To successfully use a lease-option to stop the foreclosure process, you must negotiate lease payments that cover most or all of your mortgage payment, property tax, and insurance obligations — enough that you can make up any difference and still pay to live somewhere else.”
6. Deed in Lieu
The credit rating of the homeowner will be affected if the foreclosure processes pushes through. However, they have another course of action in the form of a deed in lieu. This would not damage their credit score as badly as the actual foreclosure proceeding, since the homeowner would be transferring the ownership of the property to the lender. The lender and the homeowner would sign an agreement that relieves the debtor of his entire obligation to the creditor.
7. Deed for Lease
Once the deed in lieu has been signed, the buyer has the option to rent back their home, which is called the deed for lease. This means that the lender has consented to allowing the homeowner to stay in the property as a renter for a specified period of time. The deed in lieu has already prevented the foreclosure from transpiring and the deed for leases just gives the lender the right to become the sole administrator of the debtor’s new lease.
8. Short Sale
If the homeowner receives an offer on the home while they are in the middle of the foreclosure process, the lender is bound to consider it. The homeowner can sell the property at a price that is higher than their debt so that they can clear themselves from the contractual obligations. Moreover, short sales would not affect the debtor’s credit score if the lender does not report the sale in a soft market to credit monitoring agencies. This can also allow the debtor to purchase another home in two years.
If the homeowner is looking to sell their house quickly, there are several online sites, like needtosellmyhousefast.com, that can cater to the debtor’s immediate need. One of my friends was struggling with paying the mortgage on his house, and he decided to sell his house, so he tried posting on this site and he got an instant offer on his property. Moreover, he got a fairly reasonable price for that deal.
In conclusion, there are ways to avoid going through the foreclosure process. The reasons for non-payment can be fortuitous and unavoidable, but the homeowner should make it a point to reach out to their lender before it is too late. You might be able to negotiate the terms of your loan with the lender, and you can save yourself the trouble of having to find another home.