It can happen to any of us..... all it takes is an upset to our financial plans to get your finances upside down in a hurry. Good responsible people can have their properties become distressed by any number of reasons. Economic downturn, Job Loss, health concerns or injury and even acts of God can impact anyone at any time. So the question is what can you do and can it be prevented?
In some cases, with the right people helping you out, you can regroup and rebuild and get your finances back on track, however if you wait, the situation on compounds itself.
What are your options when facing foreclosure? Try to look at the situation more from a financial standpoint rather than an emotional standpoint. Try to analyze which option might best suit your needs and desires to move you towards resolving your financial difficulty. Though time is of the essence, you should carefully evaluate all your options before making a decision. Once you decide, you must act quickly to make sure you have enough time to complete the solution you choose. Many lenders require you to decide 21 days before your foreclosure date.
You have 9 actions you can take if you find yourself in this position:
1. Do Nothing - If you do nothing, you will most likely lose your home at a foreclosure auction. This choice is not a choice at all, it has extremely negative impacts to your credit and ability to get future financing. Loan applications generally ask if you have ever been foreclosed upon. Credit reporting agency also disclose this information. Usually not the best option.
2. Payoff/Refinance - Completely paying off your loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt. New debt is at a normally higher interest rate and there may be a pre-payment penalty because of the recent default. With this option, there should be equity in the home.
3. Reinstatement -Paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
4. Loan Modification - Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow you to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the delinquency to begin with.
5. Forbearance - Lender may be able to arrange a repayment plan based on your financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Most lenders will require extensive documentation to show that you are able to meet the new payment plan requirements.
6. Partial Claim - A loan from the lender for a 2nd loan to include back payments, costs, and fees.
7. Deed-in-Lieu of Foreclosure - Give the property back to the bank instead of the bank foreclosing. Depending on the properties condition this may or may not be an option. Banks generally require the home be well maintained. You may find that if you decide to take this path, you may be limited from qualifying for a loan in the near future. Most loan applications will ask if you have ever had a Deed-in-Lieu of Foreclosure.
8. Bankruptcy - This option can liquidate debt and/or allow more time. In some cases you may be able to self file, however the process can be difficult depending on your personal situation. You may need to a seek qualified bankruptcy attorney.
Chapter 7 (Liquidation) To completely settle personal debt.
Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
Chapter 11 (Business Reorganization) A business debt solution.
9. Sale -If the property has equity (money left over after all loans and monetary encumbrances are paid). You may sell the home without lender approval through a conventional home sale. In this case, you will receive cash from the sale. On the other hand, a Short Sale may be negotiated with your lender if you owe more than the property is worth.