Avoiding Foreclosure

Nobody who buys a new house wants to end up losing it in foreclosure, but there is always the possibility that financial difficulties may make it difficult to repay your mortgage, particularly in a bad economic climate. If you are facing such problems, however, it is important to realize that there are viable alternatives to foreclosure, which may be more suitable for your particular situation. You should look for the solution that matches your financial needs and the type of loan that you have taken out.

Reinstatement can be a good option if your problems making the loan repayments have only been temporary. You may be able to make an agreement with your lender to repay all of the late payments and the penalties that you have incurred by a specific date.

If you have only missed a few of your repayments, and you will be able to repay them, then an alternative option is to come up with a new repayment plan, together with your lender. Your lender may agree to add a portion of your late repayments onto your future payments in order to allow you to make up the repayments you have missed over a certain period of time.

Forbearance is an option that can work well if you are solvent, but you are facing temporary financial difficulties. Under these circumstances, your lender may agree to suspend your repayments or reduce the amount that you are required to repay for a limited period. At the end of this time, you will begin making the normal repayments again and you will also be expected to make the payments you have missed. You may do this either as a lump sum, or by making extra partial payments for a certain period. This can be a good alternative to foreclosure if your financial problems will only last for a known period of time. It can be a good choice if, for example, you are unable to work due to illness or a temporary disability, but you will soon be resuming work.

A loan modification will probably be a better option if your financial problems are more likely to be long-term. With a loan modification, you will come to a new agreement with your lender to permanently change the terms of your repayments. This agreement will allow you to continue making repayments, but it will make these repayments more manageable for you. The interest rate may be reduced, for example, or the repayment period extended, or the payments that you have already missed may be added to the loan. In some cases, the lender may even cancel part of the debt. If some of your debt is forgiven, you will need to report it on your federal tax return. It might be excluded from the calculation of your taxes, however.

If you are facing foreclosure then another option you may want to consider is selling your home. If you sell the property, you can repay the amount that you owe using the proceeds of the sale. Your lender may agree to postpone foreclosure if you are about to sell the property. Selling your home will work well if your property is worth at least as much as the amount that you owe plus the expenses of selling. If your house has decreased in value, this may not be the case. Should your home be worth less than what you owe on it, then you may still sell it as a short sale. Your lender may be willing to accept a sum that is less than what you owe if the property is now worth less than the loan and you are struggling to continue making the repayments.

A Deed-in-Lieu is another option in which you transfer ownership to the property to your lender and they agree to cancel your debt. This will have a less damaging effect on your credit rating than foreclosure, but you will lose your property. This option may work if your debt is the same as the value of your home, or if you owe more than what your house is worth.

If you are in serious financial difficulties, then bankruptcy may be the best option for you. The consequences for your credit rating will be serious and will last for ten years, but you will be able to take advantage of a fresh start. You may have to give up your property, unless you have a regular income and you file for Chapter 13 bankruptcy, which will enable you to keep your home as long as you agree to a repayment plan.

Some other alternatives may be available to you if you have a VA or FHA mortgage.

If you are considering foreclosure or seeking some other alternative, you should be very careful to avoid the scams which are out there. Make sure that you deal only with reputable advisors and companies and that you avoid paying high fees to companies which cannot help you. A great resource in Colorado is the Colorado Foreclosure Hotline at 1-877-601-HOPE.