Can You Avoid Foreclosure?
There are several options to avoid foreclosure, so before your credit score is too badly affected, you should try some other means of fixing the problem.
Short Sale Possibilities
One option is called the short sale and will result in your FICO score being reduced by about 80 to 100 points instead of the 200 or more a foreclosure will bring.
It might even simply show up as the loan being paid off and so not affect your score at all.
Before a mortgage lender will agree to a short sale, your debt must be in arrears. In other words, you must have missed one or more payments. Most lenders don't like short sales because they may not recover all their debt.
The terms of a short sale are that the lender agrees to accept whatever the property brings when sold as the full amount of the debt, whether the total debt is actually covered or not.
While a short sale is much better for the borrower's credit rating, it does cause a great deal of disruption to his life until completed. The lender will arrange open house days for buyers to inspect the property and private inspections for those that missed the open days. Some people might offer you a really low price.
The downside of a short sale is that if you do have any cash assets, the lender may try to claim them to recover any deficiencies from the sale.
Short sales are not the only options to avoid foreclosure. Refinancing may be possible, though in many cases should be done before things get too far out of hand. Many people don't act quickly enough and then go into foreclosure unnecessarily.
If you are behind on your mortgage payments and in financial hardship, loan modification could be the most effective tool available to save your home from foreclosure.
If you have other debts that you are finding hard to pay, then refinancing may help. Basically it is consolidating all your debt into one loan and getting better terms with a longer time to pay it so the monthly payment is less than what your total payments were.
Forebearance - Short Term Option
If the problem with making your payments was only of a short-term and temporary nature and you can now keep payments up, but it is difficult to find the extra to pay those you missed, then you may apply for forbearance from the lender.
Forbearance from the lender will let you pay off just a part of the amount you owe, along with the other monthly payment.
Another viable option to avoid foreclosure is to sell your home by private sale for enough to cover the cost of your mortgage - or even more, if the market is good enough.
Deed In Lieu As An Option
To avoid foreclosure, the borrower and lender come to an agreement to give the lender the title deed to the property. This settlement is done out of court and saves the lender the court costs associated with foreclosure. The borrower will still lose his home, but at least his credit rating comes through unscathed.
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To cure us of our immoderate love of gain, we should seriously consider how many goods there are that money will not purchase, and these the best; and how many evils there are that money will not remedy, and these the worst.
~ Charles Caleb Colton
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