Foreclosure on a home occurs when the homeowner has defaulted on the monthly mortgage payments. According to the Mortgage Bankers Association, foreclosure affects 1 in every 200 homes. Many people who lose their jobs or have unforeseen expenses can easily fall behind on their monthly loan obligations. Knowing what the options are in lieu of facing foreclosure will help save your home.
Moratorium
One program available under many government backed loans such as VA loans, FHA loans and USDA loans is a moratorium. A moratorium is where the loan is deferred for a designated time period, such as 6 to 24 months, while the homeowner finds employment or returns back to work. You must first contact your lender and speak with a loan default specialist who will be able to go over your options regarding your mortgage note. You must meet certain criteria to be eligible: You must have a health condition or be unable to work. If you have lost your job, it has to be because of a reason out of your control. If found eligible, you will not have to pay your house payment and still be able to keep your house. The drawback is that the principle and interest are still accrued on the loan and your new loan payment once the moratorium is over could be significantly higher than before.
Restructure Your Payment Arrangement
If you can continue to pay some of your monthly mortgage payment but have fallen behind because of a lay off, unforeseen emergency or medical expense, you may be able to make alternative payment arrangements. Payment arrangements can be made so that your regular monthly payments are lower for a set time, which will allow you to pay back the defaulted amount over time. Make these payments on time to avoid foreclosure. Most lenders are willing to work with you as long as you call them as soon as you are unable to make your scheduled monthly mortgage payment.
Deed in Lieu of Foreclosure
Another way to avoid the mortgage company from foreclosing on your property is to obtain a deed in lieu of foreclosure. This is a last resort when you know you will be unable to continue to pay the monthly mortgage payment. While you will not be able to keep your home, you will save yourself the red flag from having a judgment or foreclosure on your credit report. Once your credit is cleared up you may be able to borrow again to acquire a new mortgage note on a future property. A deed in lieu of foreclosure allows you to sign off on the deed and immediately return the home to the bank. You will have to leave the premises but you will avoid additional legal fees and red marks on your credit report.
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