While purchasing a home can be an exciting event, having that home foreclosed is one of the most depressing. However, when financial difficulties begin foreclosure is not always the only available option. There are many strategies that can be used to keep a foreclosure from being finalized, and many of them involve working with lenders who hold mortgages on foreclosed properties. Since it is in the lender's best interest to avoid foreclosure and let the homeowner continue making payments on a mortgage, it is often the homeowner who has much more leverage than they think when it comes to keeping their home.
If foreclosure appears to be on the horizon, it's a good idea to retain the services of an attorney who specializes in real estate law. The attorney can provide advice on the various strategies available to the homeowner, and can often act as a buffer between the homeowner and lender who is threatening foreclosure.
Short Sale
One strategy employed by many who are facing foreclosure is having a short sale. In this situation, a home is put on the market for far less than market value in order to sell quickly. The idea is to find a buyer who will pay enough for the property to cover the balance due on the mortgage. Before pursuing a short sale, you need to negotiate with the lender to see if the balance owed on the mortgage can be reduced, thereby increasing the chances of a short sale being successful. Many lenders are receptive to this because the legal costs associated with a foreclosure are substantial, and a short sale will allow the lender to be paid enough to cover the mortgage.
Loan Modification
Another strategy successfully employed by many people is loan modification. In this case, the lender and homeowner agree to a new set of loan terms and conditions, usually decreasing the monthly payment and extending the time frame of the loan. This allows the bank to get all its money, while letting the homeowner keep good credit and pay off their mortgage in an easier fashion.
On the other hand, if you would prefer an entirely new home mortgage, that can also be arranged in some cases. Many lenders today will offer loan refinancing as an alternative to foreclosure. The plan often involves replacing an adjustable-rate mortgage with a fixed-rate mortgage. This makes more sense for the homeowner, because while the initial interest rates on adjustable mortgages may seem very low, they usually shoot much higher and make it difficult if not impossible for people to continue making their mortgage payments. Having a new mortgage with a fixed rate makes it much easier to plan, since you will know exactly what your payment will be month to month.
So if foreclosure seems inevitable, it's best to stop and consult with an experienced attorney and other experts to see if alternatives are available. By doing some homework and having a willingness to negotiate, it's very possible to keep your home while avoiding foreclosure.
