What are my options to avoid foreclosure other than bankruptcy?
Forbearance and Repayment can resolve a loan default. This plan will let you repay part of the delinquency each month, along with your regular monthly installment. If you are temporarily unable to meet your monthly mortgage obligation, your holder may extend forbearance by agreeing to suspend payments for a limited period of time until you are able to begin a repayment schedule. Lenders will usually cooperate as long as you can show that you will be able to resume payments on a specific date in the near future.
- Payment Assistance is available through state and local governments. In addition, private charitable organizations have programs which may pay all or part of your mortgage obligation for a fixed period of time.
- Re-amortization is an option in some cases. If your loan is re-amortized, the delinquency is added to the loan balance in order to bring your payments up to date. This increases your loan amount and will also increase your monthly payments. The amount of the payment increase will not be as great if the life of your loan is extended at the same time.
- A Private Sale is an option if you do not believe you will be able to pay on your loan and cure the default. A private sale of the property will enable you to meet your obligations and receive any equity you may have built up. Most private sales are for more than the amount owing on the loan. You may sell the property to a buyer who gets his or her own financing and pays off your loan, or to a buyer who will assume your responsibility for the loan. If the buyer is assuming your loan, you should contact your lender and obtain a release of liability before the sale is closed. If your property cannot be sold for an amount which is greater than or equal to what you owe on the loan you may pay a “compromise claim” for the difference in order to help you go through with the sale. You should contact your lender to discuss the situation and get prior approval for a sale with a compromise claim payment. You will be obligated to repay this unsecured debt to the Lender, but in most cases it can be discharged in a bankruptcy filing.
- A Deed in Lieu of Foreclosure may be a better option if you will be unable to cure the default, and if a private sale does not appear realistic. Your Lender may consider accepting a deed in lieu of foreclosure. If there are no liens on the property, and the Lender agrees, you will sign legal papers making the Lender the owner of the property. Normally, the Lender will have to pay your loan holder a claim for the difference between the value of the property and the amount you owe on the loan. If a deed is accepted, you may be released from all further liability, or you may be asked to agree to repay the Lender all or part of the claim that they pay.
- Refunding is an option if you have a Federally Funded Loan, such as a VA loan. The VA can buy a loan from the holder and take over the service. Ask your lender to consider this alternative. If you have the ability to make mortgage payments, or will have the ability to pay in the future, but your loan holder has decided it cannot extend further forbearance or a repayment plan, you may qualify for refunding.
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