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Ways to Prevent Foreclosure Are Available

by Wayne Wargo (PenWay.org)

Ways to prevent foreclosures are available if homeowners can take immediate action either to prevent foreclosure or minimize their losses. If you are behind on your mortgage payments and unable to meet your monthly payment obligation, there still may be assistance available to mitigate the situation. You have to be proactive, because there are some solutions out there that your mortgage banker or financial institution may not have told you about.

The first foreclosure alternative suggestion is the obvious one. Try to sell your home and make sure your net sale covers the cost of all fees and the amount of the mortgage owed. If you are not "upside down" (meaning you owe more than your house is worth), maybe you can sell your home to try to minimize losses or possibly make a small gain to use as a down payment on another house.

You have to realize that the current marketplace is a buyer's one, and most people who are facing foreclosure will not have this option available to them.

If this is the case, another foreclosure alternative is to arrange for a short sale. This is where an investor deals with the bank to buy your home for less than you owe, but the bank agrees that they will accept the investor's offer as payment in full and your mortgage amount owed is forgiven. Most banks will do this because they do not want this type of asset on their books. Better for the bank to sell to an outside party and recoup part of the money owed rather than pay a real estate company to handle the transaction and have less profit. One very important thing to ask for in this situation is to make sure that you get the bank's agreement in writing so that you are not liable for a deficiency judgment later.

Another scenario is one in which the transaction is just between you and the bank with no investor involved. This is where the house is turned over to the bank and the mortgage amount is forgiven. The reason the bank or financial institution is willing to do this is because many, many foreclosed homes are in terrible shape when the bank finally takes possession. The appliances have all been removed. Even the copper piping has been taken and sold for scrap. In a Deed in Lieu of Foreclosure, you simply walk away and the bank now has ownership of the property.

Note that with either a Short Sale or a Deed in Lieu of Foreclosure, the homeowner will have a blemish on his or her credit reports Your credit score will be lowered with either of these options. How much lower is determined by the three major credit card tracking companies. However, you may see a recovery of your score within 2 years, whereas a foreclosure itself is more serious and remains on your credit history for a longer period of time.

Another possible solution is of a Special Forbearance, which is a written repayment agreement between a mortgagee and mortgagor, which contains a plan to reinstate an asset that is a minimum of three mortgage payments due and unpaid.

There also exists a Partial Claim. This is a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

But, with the new help for homeowners coming out of Washington, there is now hope for people to be able to remain in their homes. There are many new foreclosure alternatives. President Obama has offered a $1,000 incentive for homeowners who choose Loan Modification instead of short sale or foreclosure. If you have a home whose mortgage is guaranteed by Freddie Mac or Fannie Mae, HUD requires that the banks try to work out an agreement with you on the terms of your mortgage. Other recent initiatives have encouraged banks to work with homeowners even if they are not required to by a governmental agency.

Also, banks are increasingly coming to terms now with the fact that foreclosing on all of these homes in (or facing) foreclosure is not in their best interest. They now own hundreds of thousands of homes that they can neither sell nor rent. This affects their balance sheet, stockholders and society itself. Entire neighborhoods have become ghost towns and in some, the majority of residents have simply abandoned their homes and moved away, which has further decreased the homes' values.

So, try to work out an agreement with your lender to either reduce the monthly payment by lengthening the term of the loan over a reasonable period of time, adding on any payments not up to date, or any additional fees the bank will add to the new mortgage payment, or possibly lowering your interest rate. These are the best foreclosure alternatives.

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