Alternatives to Foreclosure

Alternatives to Foreclosure

A foreclosure notice on your home can be the result of numerous factors, some in your control and some beyond. But facing foreclosure doesn’t mean you are out of options. There are financial and legal alternatives you can explore ranging from refinancing your mortgage to filing for bankruptcy protection.

Refinance or Change the Terms of Your Loan

If you are unable to make your monthly mortgage payments, the first alternative to foreclosure is refinancing your note. In a refinance, a new loan is issued that pays off your original mortgage, including any delinquent payments. If interest rates have gone down since the original mortgage was issued, a refinanced mortgage could have lower, more affordable monthly payments.

However, even if rates are level or higher, modifying the terms of your loan also can result in lower payments. You will have paid off some of the original mortgage. A refinanced loan at 30 years on the lower balance can lower payments.

In either alternative, you must demonstrate the ability to meet the lower monthly payments. 

Get Current on Delinquent Payments 

If you are facing foreclosure, then you will have several unpaid monthly payments on your mortgage. It could be that a short-term problem - a layoff or work furlough, as examples - caused you to be delinquent and the problem is now solved. 

Approach your lender about a repayment plan for the missed payments. If you are financially able to resume monthly mortgage payments and meet a repayment obligation, your lender may work with you to avoid the costly and time-consuming process of foreclosure.

Sell Your Home

If there is sufficient value in your home that you could sell it and pay off your mortgage, including any missed payments, this is an alternative as well. A challenge is the time and expense involved in a sale, plus the fact that you can’t control when or whether your home sells.

This alternative has the benefit of keeping a foreclosure off your credit history. You will be saving the lender the expense and effort of foreclosing, so it is reasonable to ask for loan forbearance while you try to sell your home. With loan forbearance, the lender suspends your requirement to pay or reduces your monthly payment for a short, specified time period.

Bankruptcy Protection

While this is a legitimate alternative to foreclosure, it should be your last option. Bankruptcy is a legal proceeding in which a judge can stop creditors from foreclosing on your home. In a discharge bankruptcy, the debts you owe prior to filing for it are voided. However, if a lender has put a lien on your home, you will still have to clear that.

Bankruptcy itself is costly and time-consuming. Additionally, the mark on your credit lasts for seven to 10 years and affects your ability to do any other borrowing. The benefit is bankruptcy could help you stay in your house or give you breathing space in which you stop falling farther behind.