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Alternatives To Foreclosure

Foreclosure is a scary word, and it should be. It signifies the loss of control of your home or business, despite your best efforts and regardless of the consequences to you or your family.

There are variations of how a foreclosure happens, but generally it is when your bank or lender gets a court order to take the property away from you for lack of loan repayment then sell the property at a public auction.

There are ways to avoid a foreclosure, so let’s look at some of the choices which may be available to you.

Making use of friends or relatives

Nobody likes doing this, but sometimes they can help, either by paying off the entire debt (unlikely), or helping with refinancing by co-signing for the loan.

Rent or sell

You might be able to move out and rent the property to cover the mortgage payments if you cannot afford to pay them yourself. Or you could use the sale price to cover the remaining debts. But if the property sells for less than the value of the remaining mortgage, the lender may be willing to work out alternate forms of debt repayment to cover the balance and keep your credit rating clear.

Negotiating

Some lenders aren’t interested in helping people, but most are, and will try to work through the financial crisis with you. It will depend on your lender of course, but there may be an opportunity for a new mortgage over a longer period and at a lower interest rate, or for you to pay a smaller monthly amount for a short period if you’ve had employment difficulties. The foreclosure process might even be stopped by a generous lender when back payments, interest and legal charges are paid in full. This is why it is so important to speak to someone early about your financial problems.

You don’t make your situation any better by avoiding the phone calls and emails from your lending officer when your mortgage goes unpaid month after month. Drawing up a repayment plan is likely your best and most formal way to present your lender with new reimbursement options.

Friendly foreclosure or a deed-in-lieu

Basically you hand back the keys to the property without the bank or mortgage lender having to go to court to force you. You would then have to pay some sort of settlement, but if you really can’t pay your mortgage, then there’s no point building up legal fees for something you can’t keep.

Bankruptcy

This is really a last option and doesn’t end a foreclosure process, but might slow it down. The homeowner might be able to ask for court protection of the property in some cases.

Remember, you will want independent advice on any new deals worked out with a lender.

They don’t want to own your home, they just want the money they lent to you, repaid with interest. Legal advice is vital in a situation involving the threat of foreclosure — it’s another expense but unavoidable in such a complex process for the majority of homeowners.

Some of the money problems may be your own fault, I’m sorry to say. Take a long hard look at your spending and see where the problems are so you can find some alternative. A debt consolidation loan can sometimes help and a debt counselor can help set up a management plan for what you owe.

But the most important thing is to avoid letting the problem get worse. If you’re late on a payment, talk to someone immediately. The best alternative to foreclosure is to prevent things ever reaching that stage.