When you foresee that you will not be able to make mortgage payments, the best thing to do is to contact the lender immediately. If you wait until you get the default notice, your options to stop foreclosure will be quite limited. Do not ignore these letters; it only makes matters worse.
Methods the lender may use to stop foreclosure of your home are:
Partial Claim - If you are eligible, your lender may decide to offer you a government loan for the outstanding payments.
Refinancing - Your principal is increased as the outstanding balance is added to it. Must have equity.
Note Modification - The interest rate is frozen, or changed to something more manageable. This is primarily used for adjustable rate loans.
Repayment Plan - This method typically increases the term length of your loan. Your monthly mortgage payment increases to spread out the overdue balance.
Forgiveness - Although rarely granted or proposed, lenders do have the option of negating a missed payment or two upon agreement that you will make future payments on time.
Forbearance - The lender can decide to allow you a bit of time to make repayment arrangements. Legal action is not taken during this period.
A notice of default letter issued by your lender, states that you are now defaulting on the home loan. It also states that they must receive payment, or they will foreclose.
If you have already received a notice of default, you generally have 3 options:
1. Redeemed Pre-Foreclosure - This involves short selling your home and is useful if the amount of outstanding payments are more than what your home is actually worth. However, this option does adversely affect your credit. The IRS may also count it as taxable income.
2. Sell - Meet with a few real estate agents to get an idea of how much your home is actually worth. Go with a full-service broker for the best outcome.
3. Deeds In Lieu of Foreclosure - With this option, you will sign the home over to the lender, and they will absolve you of the outstanding loan debt by canceling the loan entirely. The lender then agrees not to foreclose. Depending upon your situation, you can negotiate occupancy until you are able to move. This should be your last resort as it can greatly affect your credit rating, just about as bad as the foreclosure itself. Also, the IRS may count the absolved debt as income. Lenders agree to do this because it saves them time, and money. But more essentially it quickly gives them possession of the property.
Of course, laws may vary by state so it is best to discuss your particular situation with an attorney who has expertise in the area of real estate.
About the author: Nicholas writes for Debt Nation, who have advice for people suffering
debt problems and those who are
fighting repossession.
