Many homeowners often do not want to admit they are facing foreclosure when struggling with their finances. Yet, it is important to be realistic about your financial situation to prevent losing the property over your head and damaging your credit score. If you have mounting financial problems that will not disappear, here is how to avoid a foreclosure on your home.
Accept Your Circumstances Have Changed
It’s imperative to accept your circumstances have changed if you can no longer pay your mortgage. There is no shame in struggling with debt, especially if it has been caused by job loss, a medical condition, death in the family, or an ability to adjust your finances to an increasing interest rate. Once you realize you are struggling financially, you should consider the following steps.
Immediately Contact Your Lender
If you want to avoid a foreclosure, do not ignore a Notice of Default out of fear or embarrassment. A lender will not want to foreclose, but they will need to protect their interests, which is why they will file the Notice of Default. If you are aware you cannot pay a mortgage on schedule, you must immediately call your lender to notify them of your financial hardship.
Arrange a Repayment Plan
As stated, lenders will not want to foreclose on your property, so they might be happy to wait before taking legal action against a homeowner. They also might be willing to arrange an affordable repayment plan, which is known as forbearance and it can help you financially recover without losing your home.
If you know your financial difficulties are only temporary, but cannot make a repayment or two back soon, a lender could potentially waive your financial obligation. This process is called debt forgiveness, but it is only available in some cases by lenders.
Spread Out Any Missed Repayments
Don’t struggle in silence if you are unable to pay your mortgage for one month or two. Simply telephone your lender and ask if you can spread out the missed mortgage repayments. For example, they might allow you to add $100 or more on top of each monthly mortgage repayment for a year, which will allow you to catch-up.
Request to Change the Terms of a Loan
If you have an adjustable mortgage loan, a lender could potentially freeze an interest rate before it increases. Alternatively, they could adjust the interest rate to provide you with a more affordable rate that will allow you to make monthly repayments on the loan.
Increase the Loan Balance
Another helpful option might be to increase the loan balance, so it will include back payments. The refinancing process is, however, only available if you have sufficient equity in the property and can meet their lending guidelines. If you do, it could be a viable way to avoid a foreclosure.
Sell the Property
Unfortunately, if a lender files a Notice of Default, the chances of experiencing the above options will be limited. Thankfully, if a lender will not help you, there are other ways you can recover your finances and credit rating without a foreclosure. If you cannot make mortgage repayments, your best option might be to sell your home. You will need to learn the market value to identify if you can enjoy a financial return on your investment. This is often the best scenario if your financial circumstances have significantly changed.
Consider a Short Sale
Sadly, you might discover the market value of your property has dropped since you bought it. As a result, your home could be worth less than you owe. If it is, do not panic, as you could potentially secure a short sale. While a short sale will impact your credit score, it will not be as detrimental as a foreclosure. Both you and an agent will need to contact the lender to negotiate a short sale. Visit the Short Sale blog for more helpful information on the process.
A Deed-in-Lieu of Foreclosure
A deed-in-lieu of foreclosure simply deeds the property to the lender, which allows them to forgive the mortgage while canceling foreclosure action. While it can stop the foreclosure from occurring, it will affect your credit score in the same way. The good news is, a lender might be willing to allow the homeowner to remain in the property until they have found somewhere else to live, but you will need to negotiate the right to retain occupancy. To do so, you must argue that the owner would still have the right of possession during the foreclosure process.
Carefully Consider Bankruptcy
Bankruptcy should always be a final option when facing considerable financial hardship. You must carefully consider if it is the right decision for you, but it will provide a discharge of debt. While the bankruptcy cannot prevent foreclosure action against you, it can potentially postpone it. It is vital you make an informed choice before contacting a lawyer, who should specialize in filing for bankruptcy. You must also request they provide detailed information regarding your financial options, costs, and the time frame.
No homeowner wants to face foreclosure on their property, but you must never avoid the reality when facing financial hardship. The greatest defense against a foreclosure might simply be to call the lender to discuss your money problems, as they might be happy to offer one of the options listed above. If you don’t, you will receive a Notice of Default, and a lender will be less willing to work with you, as a result. If you have cannot keep up with the repayments, you might unfortunately have no choice but to sell your home, accept a short sale or arrange a deed-in-lieu of foreclosure. Remember, bankruptcy should always be your last option to prevent a foreclosure on your property.
Have you managed to avoid a foreclosure on your home? Did you receive assistance from your lender? Share your helpful advice and stories by writing a comment below.