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6 Alternatives to Foreclosure
In recent months, the foreclosure process has started, stalled, and re-started for many homeowners as banks, regulators and lawyers uncovered systemic issues and faults. That has left homeowners that are in foreclosure or in danger of foreclosure with a lack of quality information and clear direction. Consumer money resource Bills.com urges these homeowners not to play the waiting game and instead take action to avoid an even larger mortgage bill or protracted legal battle.
"Homeowners facing foreclosure are being bombarded with confusing and often opposing messages, but the meter has not stopped running," said Ethan Ewing, president of Bills.com. "It is imperative that these individuals reach out to their lender now to avoid an unwelcome outcome later. The most dangerous thing a homeowner can do is nothing."
Mortgage lenders typically lose money when they foreclose on a property, so they are often motivated to reach some type of resolution before having to initiate foreclosure proceedings. These can take many forms, but it's important to recognize that lenders will usually respond to an offer of settlement.
Homeowners concerned about their ability to continue paying on a mortgage, or those already behind on their payments, should not consider the recent confusion surrounding foreclosures as a temporary relief. Instead, they should take advantage of the opportunity by reaching out to their lender or a reputable third party to open a line of communication.
In addition to contacting their lender directly, homeowners can contact third party organizations such as the nonprofit Neighborhood Assistance Corporation of America (NACA), which is geared towards helping low to moderate-income homeowners. Federal programs such as Home Affordable Modification Program (HAMP) are also available to those in need.
"There are many legitimate foreclosure resources out there for homeowners who have tried to go it alone before or prefer not to negotiate directly with their lender," continued Ewing. "But homeowners should avoid those who promise fast, advantageous settlements. Foreclosure settlements are usually difficult and complex-if it sounds too good to be true, then it probably is."
Some of the potential alternatives to foreclosure that you can discuss with your lender or chosen representative include:
-Forbearance: A temporary agreement with your lender that delays mortgage payments for a short time. Lenders are generally only willing to allow this avenue if you can prove that you will be able to restart your payments and bring your mortgage up-to-date. Terms can vary greatly by lender, so be sure you clearly understand the terms of your specific agreement.
-Reinstatement: This occurs when you are behind on your mortgage payments and agree to a lump sum payment by a specific date that brings you current on your loan status. This is normally part of a forbearance agreement.
-Repayment: This is a negotiated plan that allows you to become current on your mortgage by making catch up payments over a fixed amount of time or by combining a portion of your overdue amount with your regular payments until you are current.
-Loan Modification: This option has gained the most notoriety over the last few years because of government and non-profit programs that incorporate loan modification. In this course of action, the terms of your loan are adjusted-normally the amortization table or a lower interest rate-to sizably affect the amount of your regular payments. In this way, the bank avoids foreclosure while you retain your home through a more affordable monthly bill.
-Short Sale: If it is impossible to reach an agreement with your lender to maintain the mortgage, then a short sale can help avoid an actual foreclosure. In a short sale, your lender agrees to let you sell the property for less than it's worth and they will absorb the loss. This helps you avoid the stigma and credit damage of a foreclosure, while allowing the lender to recoup more money than in a foreclosure. As with other arrangements, terms can be radically different with each lender, so be sure to understand the terms of your specific agreement.
-Deed-in-Lieu of Foreclosure: This is a last resort option that essentially allows you to give your property back to the lender in return for cancelling the mortgage. While this will hurt your credit score, the damage is less severe than a foreclosure.
For more information, visit www.bills.com.