Ways to Avoid Foreclosure

The Lender may agree to hold off on foreclosing for a specified period of time.  They may agree
to allow the homeowner to pay less than the full amount of their mortgage, but in the end the
homeowner will eventually have to pay all the amounts owed including interest and late fees
(Reinstatement) or one of the following.REPAYMENT PLAN: 
The Lender may agree to let the Homeowner continue to make regular monthly payments on
the loan.  In addition the homeowner pays additional amounts each month repay amounts
owed for previously missed payments, interest and late fees.

In some States a homeowner has a right, regardless of the Lender’s attitude, up to a certain
point in the foreclosure process, to cure the default on the loan by paying all unpaid monthly
payments including interest and late fees, in which case your loan is reinstated, the foreclosure
is stopped and the homeowner has the right to continue making monthly payments on their
loan as if a default had not occurred.

The Lender may agree to allow the Homeowner to restructure or modify the homeowner’s loan
so that they can pay smaller amounts over a longer period of time*.  This option works well if
the loan amount is less than the value of the home (not common in this market) or interest
rates are currently lower than the existing interest rate (the most common reason for the
current market conditions)

THE Homeowner may be able to find a different Lender to provide them with a new loan which
will pay off the existing loan in default.  This may be a good option if he homeowner has equity
in the home or if interest rate or loan products currently available are more favorable than their
current loan.  It may also allow you to avoid paying mortgage insurance as a part of the loan
payment in some cases thus reducing your loan payment.

The Lender may allow the Homeowner to sell their property for LESS than the outstanding loan
amount.  In this case the Lender would keep the sales proceeds and forgive the remaining debt.
However, it is worth noting the in a short sale situation a homeowner may also experience
federal and state income tax liability for the portion of the debt that was forgiven – which will
be treated as income to them, the Homeowner, for tax purposes (consult your Tax Attorney).

The Lender may allow the Homeowner to sell the Home to a qualified Buyer to take over, or
assume, their loan.  The buyer would then make the loan payments.  However, if a homeowner
decided to do this, they should make sure that the loan assumption document specifically
releases them from any further liability for the loan .

DEED IN LIEU OF FORECLOSURE - a LAST RESORT to Foreclosure, in most cases due to Credit and
financial repercussions. The Lender may allow the homeowner to give the property back to the Lender by executing a deed in lieu of foreclosure in exchange for the lender forgiving the debt.  Signing a deed in lieu of foreclosure means that the homeowner is actually conveying all of their ownership interest in
the property to the Lender or grantee under the deed. This option still has a negative impact on their creditworthiness (or Credit Report), but ‘may’ not be as damaging as a foreclosure.  If a homeowner uses this option, they must try to negotiate a full written release of any further obligation or liability relating to the debt, otherwise they may be held responsible for some of or all loss the Lender may bear.  In addition, 2nd Trust or Home Equity Loans (or any other secured loans/liens) would remain the burden of the Homeowner to repay, unless otherwise negotiated prior to the Deed in Lieu of Foreclosure being executed.


© 2013 Metropolitan Regional Information Systems. All rights reserved.Information Deemed Reliable, but Not Guaranteed. The property information being provided is for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. The data relating to real estate for sale on this web site comes in part from the participating Brokers.Last updated on Apr 05, 2013.

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