7 Options To Stop Foreclosure

Unemployment, a prolonged illness or death in the family, credit card debt, are just a few of the reasons why millions of Americans are unable to pay their monthly home mortgage. If you’re one of those stuck in this situation, don’t despair as there are still ways to stop foreclosure of your home.

Alternative Measures To Stop Foreclosure

In situations where a foreclosure stares at you right in the face, you often lose focus. Bear in mind that foreclosure is always the last option and there are still remedial measures you can take such as:

There are several ways to stop foreclosure

Photo Courtesy of Thomas Hawk via Flickr

1. Forbearance

If you have recently suffered from unemployment or illness, the bank may consider a forbearance for you. Forbearance is a formal written agreement between you and the bank to reduce or suspend monthly payments for a specified period until the bank will be able to start a repayment schedule. However, at the end of the agreed period, you will be required to resume regular monthly payments and pay additional funds to offset the amount due. This is based on the premise that you would be able to solve the economic problems you face during the forbearance period. The majority of delinquencies due are not to exceed 12 months in arrears of principal, interest, taxes and insurance.

2. Loan Reinstatement

You can maintain your ownership in your home and stop foreclosure through a loan reinstatement. After receiving a notice of default from the bank where you secured your loan, you have the right to fully reinstate your loan within 90 days. Reinstatement means bringing the loan ‘current’ by paying the total amount due including all interests and fees. Bringing the loan ‘current’ means that every month you will have to pay the extra money for the normal price per month until the amount of delayed payments has been repaid. This process is determined by the Bank’s loss mitigation personnel. Payment can be done either in a lump sum or over a short period of time, usually 12-24 months.

3. Loan Modification

Homeowners facing possible foreclosure can get their loan modified before the foreclosure is finalized. Loan modification can affect a permanent change in interest rate, capitalization of back principal payments, interest, or escrow items or extension of the loan period. However, you will need to qualify for the home loan modification by proving that you are capable of paying the new terms.

4. Selling your house

One of the popular strategies to stop foreclosure is to sell your house. However, this option is favorable if the property is worth more than the amount due on your mortgage. The impending foreclosure should be discontinued as soon as the title is transferred, and if there’s anything good about this option is that your credit score will not be as hard hit as does foreclosure.

5. Short-selling your house

A short sale is typically executed to stop foreclosure of your home. However, the bank chooses whether to allow a short sale or to foreclose depending on the result in financial loss. Short sale means your lender agrees to discount the debt against your house or your loan balance. The negotiation is done through the loss mitigator of the lender. Advantages of short sale to the homeowner, if at all, are the prevention of a foreclosure and not getting a hit on your credit standing.

6. Filing for bankruptcy

Most homeowners facing foreclosure have the opportunity to present two types of bankruptcy, a Chapter 13 bankruptcy, which is a simple reorganization of debts, or Chapter 7, or discharge of debts.

Chapter 13 or Repayment Plan. Chapter 13 is the most common form of bankruptcy filed by homeowners to stop foreclosure. Once a Chapter 13 bankruptcy is filed, a stop payment is in place. Other advantages offered by the repayment plan in Chapter 13 is that many outrageous fees, interest rates and fees are also stopped. The program typically lasts between 48 and 60 months; giving time for the delinquent payer to catch up on missed payments.

Chapter 7 Bankruptcy. If a homeowner chooses not to include their home in a Chapter 7 bankruptcy because they still intend to keep the house, they must stay current with payments on the house while the remaining debts are discharged. However, if you’re unable to bring a mortgage current, the bank will file a motion of relief of stay.

Chapter 7 is a valuable tool for some wise homeowners who realize that they are going to lose the house anyway and may be better to wait after the Chapter 7 case has been completed. Some may use it to bid for sometime until a short sale takes place.

7. Deed in lieu of foreclosure

A homeowner may be better off signing a deed in lieu of foreclosure instead of letting the process of foreclosure happen. Signing a deed in lieu means the borrower voluntarily gives the house back to the bank. Although this will be recorded on your credit report, it is not as damaging as foreclosure, which normally last 7 years on your credit report.

With these varied options to help you stop foreclosure, you will no doubt find one that will help you save your home.

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