When someone is in the downward slide of the foreclosure process, it can be a frightening time in their lives. Having little or no understanding of the process, one frequently does not know they have alternatives available. This lack of knowledge can lead to costly mistakes in the long term, and can leave one with seriously damaged credit.
If someone knows they are struggling, and have yet to be late on a payment, the best alternatives are to sell and then buy something they can better afford, or re-finance it at a lower interest rate to ease the burden. Sometimes the mortgage company can offer re-financing or loan modification program to avoid foreclosure. One can also shop around and compare programs available by credit unions, banks and mortgage brokers.
In the case where someone is a payment or two behind, but has handled their future finances where they know they can recover, lenders will offer what is called a ‘forbearance' plan. Forbearance allows the borrower to pay additional sums added to their current payments, catching up back payments over a period of usually 3 to 6 months. To find out if this program is available, one should contact their lender.
Another alternative if one is recovering from a rough financial period, but has resolved their future income issues, is to catch up the delinquent payments and bring them current through the either a private loan from a friend or family member, or other resource. There are resources called ‘hard Money Lenders' that can be found by searching the internet. They offer small loans at high interest rates. This alternative should only be used if one really knows for sure they can pay back the small loan in addition to keeping the mortgage current from then on.
Bankruptcy is another alternative, but is only an option if executed before the foreclosure sale. Bankruptcies stay on ones credit report for 10 years, and may not be the best alternative for everyone. Consult with an experienced bankruptcy attorney for more details.
Lenders will sometimes offer a ‘Deed in Lieu of Foreclosure'. This is sometimes called ‘Cash for Keys'. Essentially this is where the homeowner agrees to sign over the deed to the lender (usually in exchange for a small fee) to avoid the costly foreclosure process, and in turn the lender agrees to not report it as a foreclosure on the credit report. Not all lenders offer this.
A popular option is selling the property before foreclosure sale, or during the redemption period. Foreclosure laws vary from State to State, and some do not have a redemption period. Michigan does. Selling the property can minimize damage to ones credit by settling the debt before it is taken back by the lender. In a case where someone owes more on the property than it is worth for market value in the area, one can sometimes succeed with a ‘short sale' on the mortgage. A short sale is where the buyer requests the lender except a shorter pay off than what is currently owed to settle the debt due to declining market value and financial hardship. An experienced Realtor in short sales can help you with this.
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