How to Protect your Property from Foreclosure

Having your home foreclosed is disruptive to your family and devastating for your credit. But in spite of what you might believe, your mortgage lender doesn’t want to foreclose on your home either. Foreclosures can be logistical nightmares, and aside from a few predatory lenders, most mortgage lenders actually lose money on a foreclosure. With this in mind, it’s worth exploring options that will protect your property from foreclosure.

Contact Your Mortgage Lender as Soon as You’re in Trouble

Don’t wait until it’s too late - as soon as you think that you may be getting in over your head, get in touch with your mortgage lender. There are a number of temporary and long term solutions that a mortgage lender can offer you that are preferable to foreclosure for both parties. These include:

Reinstatement - If you agree to repay your missed or late payments by a certain date in a lump sum, the mortgage lender will reinstate your loan without foreclosing.
Forbearance - If you experience a reduction in income or an extenuating circumstance, such as sickness, being laid off or debilitating injury, the lender may offer you a temporary reduction or suspension of your mortgage payments. This usually lasts for about 3 or 4 months and may include a reinstatement as well.
Repayment plan - If you missed payments, instead of keeping them delinquent, your lender may allow you to devise a repayment plan that stretches out the outstanding payments over several months until you “catch up.”
Loan modification - This is an alteration of your current loan with your current lender, where the repayment period is extended, the interest rate is changed, the type of loan is altered or a combination of these is done. This usually carries a fee, but does not have the negative impact of foreclosure.
Partial claim - If you are paying for private mortgage insurance, you may be able to file a claim for relief from the insurance company. This is typically an interest-free loan that brings your account up to date but comes due whenever you pay off your mortgage, sell your home or refinance.

Refinance

Refinancing is different from a loan modification in that it gives you an entirely new loan, and possibly a new lender. When you refinance, you pay off your previous mortgage and start a new one. The costs of paying off your previous mortgage are rolled into your new mortgage. Of course, if you are facing foreclosure, you likely don’t have incredibly good credit or debt to income ratio. You may have to consider a bad credit mortgage refinancing - but beware of predatory lenders and foreclosure relief scams.

Selling Your Home

Ideally, you’d like to keep your home - but if it’s a matter of rescuing your credit score and downsizing or moving in with a family member for a few months, getting out from under your mortgage may be better in the long run. If you find a buyer who will pay the amount you need to pay off the mortgage, that’s excellent. But if you can’t, you may be able to arrange a pre-foreclosure or short sale with your lender, where the mortgage lender accepts whatever amount you can get for the house, even if its less than what you owe. You may also be able to get your lender to take the deed-in-lieu of foreclosure, wherein the lender assumes ownership of the home and forgives the balance of your loan. These options may incur income taxes, however, so check with the IRS before moving forward. Lastly, you may be able to arrange an assumption, where another qualified buyer takes over your mortgage for you.

While these options may not be ideal, they are preferable to having a foreclosure on your credit history. Get in touch with your lender and a reputable mortgage or debt counselor and explore your options.