9 options when facing foreclosure

Facing Foreclosure Options photoIf you are facing foreclosure, try to look the situation from a financial standpoint rather than from an emotional perspective. This helps you successfully analyze which option might best suit your needs and desires — and move you toward a resolution of your financial difficulty.

The most important thing to remember: Time is of the essence. Carefully think through your situation and make a decision. Then, take action right away so you have enough time to implement the solution you choose.

Here are your options, good and bad:

1. Do nothing: If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Not the best option.

2. Payoff/refinance: Completely paying off the loan amount plus any default amount and fees. This usually is accomplished through a refinance of the debt. New debt normally comes at a higher interest rate and there may be a prepayment penalty because of the recent default. With this option, there should be equity in the home.

3. Reinstatement: Paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.

4. Loan modification: Utilizing the existing mortgage company to refinance the debt or to extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you fixed the problem that caused the late payment.

5. Forbearance: The lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or a suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.

6. Partial claim: A second loan from the lender for back payments, costs and fees.

7. Deed in lieu of foreclosure: Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, with all mortgage payment and taxes current. Most loan applications ask if this has ever happened to you.

8. Bankruptcy:
This option can liquidate debt.

9. Sale: If the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a short sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is more than the property’s value.

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