How to Stay Away From Foreclosure

If your property is in danger of foreclosure, you must act quickly—one wrong action might spell tragedy. However, if the necessary precautions are taken, this calamity can occasionally be avoided.

TAKEAWAYS IMPORTANT

• There are steps you may do to save your home from being foreclosed on by your lender.
• If you can save up enough money to pay off your missed mortgage payments in one single amount, you may be able to get your mortgage reinstated.
• You can ask your lender for a short refinance, in which portion of your mortgage debt is forgiven and the rest is reorganized into a new loan.
• If you have an unexpected emergency that will be resolved quickly, you can ask your lender for a period of forbearance, during which your mortgage payments would be lowered or perhaps stopped entirely.

Don’t start packing if your home is in danger of being foreclosed on. Instead, take action. Anyone with a government-backed loan provider and built-in mortgage insurance, such as an FHA loan, should be able to use the following methods to avoid foreclosure:

• Reinstatement

When you fall behind on your mortgage payments, reinstatement allows you to pay the entire balance in one lump sum (including any interest and penalty costs) before a deadline.

• Short Refinancing

In a short refinance, the lender may agree to forgive a portion of your debt in exchange for refinancing the remainder into a new loan.

• Forbearance

A short-term financial setback, such as a medical emergency or an unexpected reduction in income, may prevent you from making your mortgage payments on schedule. If your lender believes you have a good reason for missing payments, he or she may agree to assist you out by providing a forbearance.

Depending on your financial situation, your lender may agree to a repayment plan that temporarily reduces or even eliminates your payments for a set period of time. However, in order to achieve this arrangement, you must ensure your lender that you will stick to the new repayment schedule without fail.

According to the CARES Act, if a residential borrower is facing financial hardship as a result of COVID-19, they may be allowed forbearance on their federally-backed mortgage loan for up to 180 days, with the option to extend for another 180 days (potential relief for a total of 360 days). President Biden’s executive order signed on Jan. 20, 2021, extended a moratorium on evictions and foreclosures until at least March 31, 2021.

• Mortgage Modification

You can refinance or extend the term of your mortgage debt with a loan modification. The lender may agree to monthly mortgage payments that are affordable to you. To be eligible for this option, you must persuade your lender that your financial difficulties are merely temporary and will be remedied soon.

Discrimination in mortgage lending is against the law. There are actions you can take if you believe you’ve been discriminated against because of your color, religion, sex, marital status, use of public assistance, national origin, disability, or age. A report to the Consumer Financial Protection Bureau or the US Department of Housing and Urban Development is one such process (HUD).

• Refinance With a Hard Money Loan

If your lender considers you a high-risk borrower, it may refuse to refinance your loan. You can contact a private lender to refinance with a hard money loan to avoid foreclosure in this scenario. These loans usually have exorbitant interest rates and costs, but they might be able to buy you the time you need to escape foreclosure.

Because the interest rates and costs are so exorbitant, refinancing your mortgage with a private lender as a hard money loan should be the last alternative.

When Foreclosure Is a Foregone Conclusion

If you find yourself in a scenario where foreclosure is unavoidable, there are several strategies you can employ to lessen the financial impact.

• Pre-Foreclosure Auction

If you are certain that your finances are deteriorating, the only choice left to you is to sell your property for less than the amount needed to pay down your mortgage loan. Only if you fall behind on your mortgage payments for a few months or as stipulated by your lender will you be eligible for this option. You may also be compelled to sell your home within a certain time frame.

If you can’t face the thought of leaving, you may sell your property to a friend or an investor who will then rent it to you. The easiest method to do this is to sign a lease (or contract) that contains an “option to purchase” clause, which allows you to buy back your house once your financial situation has improved. However, there are substantial hazards associated with this option, as the investor may borrow against your property or even sell it without your permission while you are leasing it.

• Deed in Lieu of Foreclosure

Another option is to willingly surrender your property to the lender in exchange for debt forgiveness. Only if you are unable to sell your house before foreclosure will you be eligible for a deed in lieu of foreclosure. The only benefit of this option is that it saves you from foreclosure and the terrible credit record that comes with it.

Bankruptcy rarely buys you enough time to catch up on your bills; instead, it usually just delays the inevitable.

• Bankruptcy

Many individuals believe that declaring bankruptcy is a great way to avoid foreclosure. In actuality, bankruptcy will only postpone your foreclosure and provide you more time to catch up on your payments.

When the bankruptcy-imposed suspension is lifted, the lender has the right to demand full payment, which may necessitate applying for a refinancing loan. However, because you would have a bad credit score as a result of the bankruptcy, your chances of acquiring a refinance loan are nearly nil at this time.

PS: This is not a legal advice, please seek a professional. This is for informational purposes only.