Ways to Avoid Foreclosure

Thursday, June 14th, 2012

The best way to avoid foreclosure is to prevent the filing of a Notice of Default. Lenders do not want to foreclose but will file a Notice of Default to protect their interests, if necessary. If you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender.

Do not ignore letters from your lender because those responses will make the situation worse, not better. Depending on your particular situation and hardship circumstances, here are some options your lender might propose to you:

Time To Catch Up Your Payments:

Lenders might agree on forbearance. The lender will wait before taking legal action against you and let you work out a repayment plan that is affordable for you.

Forgiving A Payment:

Debt forgiveness is rare. It involves agreeing that you will be current after missing a payment and the lender waiving your obligation.

Spread Out The Missed Payments Over A Longer Term:

A repayment plan allows you to pay your missed payment over a few months to a year. For example, if your payment is $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up.

Changing The Terms Of Your Loan:

If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable.

Add The Back Payments To Your Loan Balance:

If you have sufficient equity and meet the lender’s lending guidelines you might be able to refinance. Here the lender might increase your loan balance to include the back payments and re-amortize the loan.

Make A Separate Loan To You:

During a partial claim borrowers who meet specific criteria can apply for another loan, which will pay back the missed payments.