In light of the current housing market crisis facing America, the information “foreclosure” represents a very real threat and risk that is breathing down the necks of millions of Americans. It seems there are few people who do not personally know someone who has lost their home, and foreclosure statistics are presently nothing short of upsetting.
You do not have to be helpless if you are a homeowner struggling to continue ownership of your home. A number of options are obtainable to you as you analyze avenues to avoid having your home being foreclosed on.
Here are 5 ways to avoid foreclosure:
1. Loan alteration — Loan alteration refers to the restructuring of a mortgage so that the monthly payments are lower and easier to cope with. The good things about loan alteration are that your new mortgage payment results in a monthly financial commitment that is less burdensome than the pre-alteration amount; it involves no fees (attorney and closing fees for example); the homeowners credit rating is not damaged (unless you stop making your mortgage payment prior to getting the alteration); and it can often consequence in a decline in the amount of interest that is associated with the loan amount. On the downside, the loan term is typically extended, and a alteration cannot be used to increase the size of the loan amount, as in the case of refinancing.
2. Short sales — In simple terms, a short sale refers to a situation in which a home is sold at a price that is less than its confront value. The dominant advantage of a short sale is that it is a lot less damaging on one’s credit than in the case of foreclosure, and in many situations credit reports mirror short sales transactions simply as settlements on accounts. Some credit professionals calculate that a foreclosure can adversely affect a homeowner’s rating by 200 points more than a short sale. Another positive associated with short sales is the fact that homeowners are able to part with their homes with a lot more dignity as compared to the foreclosure course of action.
The possible negative things to be mindful of regarding short sales are the fact that the IRS regards as taxable any portion of the loan that is written off by the lender. Check the Mortgage Debt Relief Act of 2007 that would allow you to exclude income from the release of debt on your dominant residence. Also, you need to be sure that your lender does not come after you at a later stage for the balance of your loan that was not covered by the sale of your house; please make sure to get a deficiency waiver from your lender. Working with an experienced and specialized short sales negotiator can help you avoid these situations with your bank and the IRS.
3. Deed-in-lieu of Foreclosure — A deed in lieu of foreclosure is a deed instrument by which a homeowner communicate all interest in a character to the bank/lender in order to satisfy a loan that is in default and prevent foreclosure from taking place. It essentially amounts to giving the home back to the bank and making no further payments on it. This option closest releases the homeowner from any noticeable loan amount that is applicable. The homeowner is also able to prevent the public embarrassment that is so often associated with administration proceedings. After a deed-in-lieu-of-foreclosure, the borrower has the option of purchasing another home in the future.
4. Filing Bankruptcy — The most obvious drawback of filing for bankruptcy is the devastating effect it can have on your credit rating. It can often average that a person’s credit is ruined for as long as 7-10 years. In addition, it is not guaranteed that all the debt will be erased, it is a cause of major embarrassment, and it method that it becomes nearly impossible to buy a home again for quite some time. Despite the damaging consequences related to filing for bankruptcy, it does bring an end to the harassing phone calls and possible lawsuits, and allows the person to begin the lengthy course of action of rebuilding their credit in peace. State laws vary, but some character such as cars up to a certain value, some furniture and clothing items, life insurance, and portions of earned wages cannot be taken by the lender after bankruptcy is filed.
5. Repayment option or payment forbearance plan — This is an agreement entered into between the homeowner and lender whereby a mortgage loan that is at the minimum 3 months in arrears can be reinstated. A written payment plan is set up, and the period in which the loan payments may be allowed to fall behind cannot go beyond 12 months. The gist of this arrangement is that mortgage payments are suspended for a period of time, allowing the struggling homeowner some time to reorder his/her finances, to begin again with payments at a future determined date, and to avoid foreclosure proceedings. The character of the mortgage loan does not change; the loan term is simply extended by the amount of months that payments are suspended.
If you find yourself struggling to cope with the demands of your mortgage during the tough economic and housing market conditions that are currently prevailing in the United States, there are options at your disposal. Foreclosure does not have to be a forgone conclusion.
Should loan alteration be of interest to you, please visit www.mycaal.com.