Foreclosure is a legal procedure that happens when a borrower doesn’t pay his mortgage. The creditor files a lawsuit against the debtor and repossesses the home for which the mortgage was secured. Borrowers who fall into financial difficulties and can no longer manage their mortgages can avoid foreclosure in several ways. Acting quickly is important. Most foreclosure avoidance processes depend on starting early while there are still choices to a foreclosure.
The U.S. Department of Housing and Urban Development (HUD) sponsors housing counselors throughout the country to help fighting borrowers avoid foreclosure. These counselors provide their services either for free or at a low cost: they will help your reorganize your finances and negotiate financing modification with your lender that will assist you save your house from foreclosure. Locate a housing counseling agency near you at the HUD website (see Resources).
Loan alterations change the terms of a mortgage so that you can manage your mortgage obligations. Loan alterations can reduce your interest rate, reduce the length of your loan and lower your mortgage balance. Authorities and charitable organizations provide programs to assist individuals negotiate financing modification (see Resources).
Mortgage refinances allow you to take out another mortgage with better terms to pay your current one and lower your monthly payments and general interest payments. Some lenders provide cash-out mortgages that allow you to borrow more than your existing mortgage balance and use the additional cash to pay other debts or invest as you want. Cash-out mortgages can increase your monthly payments and put your house at risk.
There are two main foreclosure alternatives in the event that you cannot manage your mortgage and do not qualify for financing modification or even a mortgage refinance: brief sales and deeds-in-lieu of foreclosure. A brief sale is the sale of a home for less than the mortgage rate owed on it. The creditor must agree to a brief sale, and might ask you to pay the remaining balance on the mortgage after the sale is concluded. A deed-in-lieu occurs when a creditor agrees to take over the home in exchange for canceling the mortgage. The creditor can still need the gap between the market value of their home and the mortgage balance. Talk to a housing counselor or lawyer prior to committing to a brief sale or deed-in-lieu of foreclosure.