Alternatives to Foreclosure
Buying a house is a big investment. It really puts a dent on your financial resources. Of course, the expenses do not end with the down payment. You still have to contend with the monthly payments for the mortgage. This is a financial situation that you will have to live with for years until you have fully paid off your loan.
But what happens if you get behind in your mortgage payments? A delay in payment can have very serious consequences for your mortgage situation. If the delinquency in payments has become too severe then your home could be in danger of foreclosure. A foreclosure means that your property will be repossessed by the lending institution that gave you your mortgage.
Fortunately, even if you have defaulted on your payments, it does not necessarily mean that your property will be foreclosed. There are various alternatives to a foreclosure that you can take. Some of these are:
Paying the delinquency. Generally, all lending institutions are required to accept all the payments that were delinquent and reinstate the loan. The delinquent payments that you have to pay may also include some legal fees especially if you are already in the foreclosure stage. There are also lending institutions that require certified funds in order to reinstate the loan.
Forbearance and Repayment. One of the most common ways of resolving a delinquent mortgage is to work out a plan with your lending institution where in you get to pay a part of your delinquency every month on top of your regular monthly payments. If you are in a situation where you are not able to meet the monthly mortgage payments, your lender can elect to extend the forbearance by suspending payments for a certain period of time up until you can start a repayment schedule.
Payment Assistance. Some state and local governments and also private charitable organizations have instituted programs that help people with delinquencies pay all or part of their mortgage obligation for a certain period of time.
Reamortization. In a reamortization, the delinquent mortgage amount is added to the loan balance as a way of bringing the mortgage payments up to date. This move increases not only the total loan amount but also the monthly payments. Of course, the increase in payment will not be as large if the life of the loan is also extended.
Private sale. A private sale of the property affected by the delinquency can also be done as it will allow you to meet your obligations as well as get any equity that may have accumulated. In private sales it is usual that the amount is greater than the stated amount owed on the loan.
Most of these alternatives presume that you will be able to pay your mortgage payments at some point. But there is also a particular foreclosure alternative called a loss mitigation program. The federal government as well as the mortgage industry established this type of program as a way of stopping foreclosures. Under this program you are given options that will not only assist you in keeping your home even if you do not have the financial capability to pay for the mortgage payments. With these types of programs, it becomes so much easier to address the problem of foreclosures.
How The Foreclosure Process Works
I don’t know about the rest of the world, but there have been times in my life when I have felt as though I was one paycheck away from serious financial peril. Too bad Superman doesn’t come to the rescue for matters such as this. One of my greatest fears has been losing a home because I lost my job or had an injured child (or injured self) that required me not to work for an extended period of time that exceeded my savings, or any of nearly a thousand reasons. The recent movie “Fun With Dick and Jane” struck a chord of sheer terror in my heart because bad things sometimes happen to good people. Good people have their lives ruined through circumstances that are completely and totally beyond their control.
With a foreclosure, there really isn’t a bad guy. There is no mad banker waiting greedily in the wings to throw your family out on the street. The truth is most of these people have a great amount of compassion and come across as harsh because the decision to foreclose generally isn’t up to them. Besides we signed on the dotted line when we decided to purchase a home. A home is, for most people, the single largest investment we make in our lives. The process of foreclosure can be frightening if you are armed with knowledge; it is absolutely terrifying if you are uninformed throughout the process.
Here are some things you should know about the foreclosure process.
1) First of all, a home does not go into foreclosure until you have become 3 months behind on your payments. Of course the goal is to never get behind at all, but we all know that stuff sometimes happens and some things are beyond our control. This means you do not have to exist in constant worry that if you are a few days late on your mortgage payment for a couple of months that the sky will fall. This is unlikely to be the case unless you are seriously behind. Be proactive and don’t let yourself get that far behind, or start working with the bank beforehand if you know it’s inevitable.
2) Once you are three months behind you will either go into what is called judicial foreclosure or non-judicial foreclosure. In a judicial foreclosure, a lawsuit is issued to the homeowner who can elect whether or not to respond. If the owner doesn’t respond the home is auctioned off to the highest bidder unless the bid doesn’t exceed the total amount owed on the home. In a non-judicial foreclosure the lending institution would issue a statement of default and notify the owner of its intent to sell the home. The owner at this time can possibly work to arrange an agreement and payment plan that is acceptable to the financial institution, or file a chapter 13 bankruptcy in order to stop the foreclosure. If this does not happen then the property will be sold.
3) Here is where it gets tricky. If the sale of the home doesn’t result in a sum of money that is at least equal to the amount owed on the home, the original homeowner is responsible for the difference. Failure to pay the difference can be just as detrimental to your credit as the foreclosure itself.
The process of foreclosure is not fun; it is not meant to be. Don’t overextend yourself credit wise. Buy a house you know you can afford and live below your means.
