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8 Ways to Avoid Foreclosure

8 Ways to Avoid Foreclosure

1) REINSTATEMENT: Bring the loan current

If the problem that caused a homeowner to miss payments has been resolved, then they have the option to reinstate their mortgage which is up to the bank sale. Sometimes the owner actually has a redemption period that extends beyond the date of bank sale.

The homeowner has to pay all missed payments, late fees, and legal fees that are due up to the date that the loan is reinstated in order to reinstate the mortgage. The owner would request this amount from the mortgage company by sending a reinstatement letter. Since the amount owed is time sensitive, the reinstatement letter will usually expire after thirty days. A reinstatement will require a onetime payment of all delinquent funds in full.

After the payment has been made, the mortgage is reinstated and the homeowner makes payments as they had before.

Example: Homeowner misses 4 payments on a $1,500 a month loan and the foreclosure process has been initiated.

Reinstatement amount:

4 month's Payments at $1,500/month = $6,000
Late Fees =  $300
Legal Fees  =  $1,200
Processing Fee  =  $250
Total Reinstatement  =   $7,750

2) FORBEARANCE: Temporary repayment plan

If the problem that caused missed payments was temporary and the homeowner is not able to make a onetime reinstatement payment, they may be able to negotiate a forbearance or repayment plan. This is another option that also reinstates the mortgage if the homeowner does not have the means to repay all of the missed payments and legal fees. The lender allows the homeowner to pay the missed amount over a period of time. They may place the missed payments on the end of the amortization of the loan however is much more likely that the homeowner will be given a period of time in which to pay delinquencies.

Example: Homeowner misses 4 payments on a $1,500 a month loan and the foreclosure process has been initiated.

Reinstatement Amount:

4 Month's Payments @ $1,500/month =  $6,000
Late Fees = $300
Legal Fees  = $1,200
Processing Fee  = $250
Total Reinstatement  = $7,750

If Bank allows homeowner to pay over 12 months:

Total Reinstatement  = $7,750
Reinstatement Payment 12 months  =  $646
Current Payment  = $1,500
Monthly Repayment =  $646
12 Month's Payments Each = $2,146

Once the Homeowner finishes the 12 payments the mortgage would go back to it's original amount.

Usually the mortgage is not completely reinstated until all the payments are made in full. If the homeowner misses even one payment, they can end up in back in the foreclosure process they were in before.

3) REFINANCE: New loan with reduction in monthly payments

If the homeowner has enough equity and income and their credit is still okay, they may be able to refinance. This is also usually not a permanent solution since the payments typically go up because of the refinance. If the problem that caused the homeowner to be late in the first place has been resolved sometimes this will work but in most cases it will eventually foreclose.

4) LOAN MODIFICATION: Modify original loan terms

In some cases when homeowners can afford their mortgage payments or very close to it, the mortgage company may qualify them for a loan modification. A loan modification is very similar to a lower interest refinance where the lender lowers the interest rate on the existing loan to lower the payments. The homeowner has  to qualify by sending in proof of income, and expenses. If this option is available it is an excellent option for homeowners to keep their homes.

5) SELL THE PROPERTY: Use equity to payoff or pay difference

A buyer can sell the house and cure the foreclosure if they have enough equity in their property. Unfortunately, a lot of sellers think they have to sell much faster than they do and they end up taking the first offer they get. If they are working with an agent that is aware of the foreclosure time line and have the knowledge to price the property accordingly, they can harvest as much equity as possible.

Also, it's a good idea to make sure that there are no prepayment penalties on the payoff or liens on the property which could eliminate any equity.

6) SHORT SALE: Negotiate with bank to accept sale under loan amount

This is a possible option when a homeowner owes more than their house is worth and no other solutions work for their situation.

7) DEED IN LIEU OF FORECLOSURE: "friendly foreclosure"

Sometimes called a "friendly foreclosure"  because the homeowner basically gives the deed back to the bank preventing the bank from having to go through the foreclosure process and sometimes they will forego their rights to a deficiency judgment in exchange.  The mortgage company would agree to take back the deed in exchange for the property and most of the time have no further recourse. This works when there is one mortgage with no liens or in rare cases where  the first mortgage holder negotiates with a second mortgage holder.

8) BANKRUPTCY: will stall foreclosure but not prevent it

One of the drawbacks to this solution is that most of the time the bankruptcy only stalls the foreclosure. If the homeowner is not able to make the payments after the bankruptcy the house will foreclose anyway.

 

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