Things You Can Do to Avoid Foreclosure

Foreclosure is getting more common in the property market.  It was even more felt with the fall of subprime mortgage lenders such as New Century; which recently filed for bankruptcy.

Lenders foreclose properties as a last resort, since they generally don’t make money by taking over a delinquent owner’s property.

"It’s not about the property, it’s about getting a bad loan off the books."

according to Donnie R. Shorts, whose company, Mortgage Mitigation Services, acts as an advocate for borrowers in trouble. Shorts’ discussed that a lender’s response to delinquency depends on many different factors such as; how long the borrower has owned the home, how much equity there is, local market conditions and the local economy.

If you’re having difficulty in paying your mortgage, contact your lender at the onset of your problem. Request to work out a repayment plan.  The earlier you contact them the better before unpaid interest piles up, which makes it harder to update your loan.

Here are some options that will help borrowers keep their homes:

Loan Modification – At least one term of the mortgage will be changed, depending on the lender’s decision and its suitability to your current circumstances. Examples of such modifications to make your loan current are; capitalizing the delinquent interest, extending the fixed period on an ARM loan and reducing the interest to reduce your monthly payment.

Repayment Plan - A formal written agreement that you will bring your loan up to date in an agreed period of time; usually in less than 18 months.

A Forbearance Agreement – The lender reduces or suspends your loan for a certain period of time; usually up to 3 months.

If you’re unable to strike a deal with your lender; two other options are:

Pre-foreclosure Sale  This has two major benefits for the owner which are; to preserve his credit score and to have some money back if their property has an equity.  You can read more about pre-foreclosure in my previous article.

Deed-in-lieu-of-foreclosure  If you don’t have enough equity in your property to yield a profit, this is a better option than going into foreclosure; which can result to a poor credit score. You simply turn over your property to the lender.  You gain nothing but you don’t lose more.

Dealing with foreclosure is emotionally draining for any property owner. Make sure you approach the right people such as your lender or a lawyer when seeking help.  Beware of people who devised some foreclosure rescue scams; that could only magnify your troubles.

Source: CNN Money