A foreclosure is one of the worst things that can happen to a mortgagor. He may lose the mortgaged property, in case of default in making timely payments. So every mortgagor must have a basic know how about how to avoid foreclosure.
This is very important because unforeseen events may happen in anybody's life and may affect his financial conditions. It could be a job loss, divorce, debt obligation, health problem or anything, for that matter. Default in mortgage payments will eventually lead to foreclosure, if you fail to act promptly and try the different options for avoiding the same.
If you are worried about your dwindling financial status that may affect timely mortgage payments, you must take immediate measures to avoid a possible foreclosure in future. Here are some of the possible options:
✦ One of the basic options is to go for timely mortgage payments. In other words, avoid making defaults in payments. You may sell some of your assets and arrange for timely payment of home mortgage.
✦ If there is no way out for you to make payment, then the best way is to inform the lender about it. It is a fact that even the lender does not always prefer foreclosure. So the lender may provide you with some options.
✦ One of the foreclosure prevention options that the lender may put forward is forbearance, which is a temporary agreement to delay mortgage loan payment for a short period. This will happen only if you can prove and convince the lender that you will acquire some funds soon, and will make the payments without fail.
✦ In some cases, the lender may propose a loan modification like decreasing the interest rate and thereby reducing the monthly installment. The lender may also agree to extend the amortization period, apart from loan modification.
✦ The lender may opt for a repayment plan, wherein the missed payments are divided and added to the future monthly installments. E.g.: If your monthly installment is $1,000, and you have defaulted for 3 months, then, $3,000 will be equally divided among the future installments. It could be like $1,200 for the next 15 months or $1,300 for the next ten months.
✦ It may also happen that the lender opts for refinance, wherein the missed payments are added to the loan balance, along with an extension of the amortization period, and sometimes with a lower interest rate. In case of some government loans, certain borrowers are provided with another loan, called partial claim, so that they can repay the back payment.
✦ Another option is the government program called FHA Secure. It is meant to help people for avoiding foreclosures, in case of borrowers in default. However, there are various terms and conditions for determining the eligibility of the applicant. This program is implemented by the Federal Housing Administration.
In short, you must take efforts to avoid foreclosure, as soon as you realize that your financial conditions are getting worse and default in mortgage payments is possible in near future. You have to analyze your financial conditions or seek the help of a non-profit credit counseling agency for this purpose.
In case of an HUD home, seek the help of HUD counseling agencies. Make sure to approach reputable companies and beware of foreclosure scams. You may also conduct a location wise search. For example, those staying in Florida can search for "avoiding foreclosure Florida".
Another method to stop foreclosure is short sale, which may sometimes affect the credit, but not as severe as a foreclosure would do. You may also opt for a deed-in-lieu of foreclosure, which involves transferring the title of the property to the lender, who forgives the mortgage debt.
This transaction may also affect the credit of the borrower. To summarize, you must negotiate with the lender and work a way out to avoid foreclosure. If possible, inform the lender about your hardship beforehand, so that they can work out the best possible option.
Disclaimer: The information provided here is solely for educating the reader. It is not intended to be a substitute for the advice of a professional.