Foreclosure occurs when a mortgagor (the borrower) misses or fails to make mortgage payments to their lender. Basically, foreclosure terminates the purchaser’s rights to the property that is bought under the mortgage agreement.
Foreclosure allows the lender to sell the property in what is known as a foreclosure sale. Foreclosure sales can either be managed by the courts, by the mortgage lender themselves, or through a third party.
What Are Some Alternatives to Foreclosure?
Facing foreclosure can often be intimidating. Fortunately, there are many different alternatives to foreclosure that may be available to a mortgagor. Some of these can help you avoid foreclosure, or at the very least, delay the process so that you can come up with mortgage payments.
Some foreclosure alternatives include:
- Mortgage Modification: This allows the borrower to refinance their debt by modifying the mortgage terms. This may include extending the term of the loan or by reducing monthly payments to a more comfortable amount.
- Forbearance by Special Request: This is a temporary reduction or even suspension of monthly payments. Only certain borrowers can qualify for this, particularly if they can demonstrate that they have reduced income or increased expenses
- Reinstatement: Paying the loan institution the entire amounts that are past-due, plus any interest, late fees, or penalties. Not an option for all borrowers, but can be helpful if you only have temporary financial issues.
- Filing a Partial Claim: Certain insurance funds can help you get your mortgage current. You and your lender can file a partial claim with such funds
- Pre-Foreclosure Sale: This option basically involves selling the property for a lesser amount than normal, which can help create funds for paying off mortgage debt. This is especially helpful for properties not being used as the primary residence
- Deed (In-Lieu of Foreclosure): Involves voluntarily transferring the property deed to the lender. While this may not save your ownership of the property, it can sometimes be a much better option than foreclosure in terms of credit ratings.
The availability of these different alternatives may differ according to jurisdiction. Also, only certain mortgagors qualify for some of these alternatives, based on their factors such as their credit history, financial income, etc.
Do I Need a Lawyer for Foreclosure Alternatives?
As you can see, many different parties may be involved with each of these foreclosure alternatives. Thus, it is to your advantage to work with a foreclosure lawyer or real estate lawyer when negotiating for these options. Having a lawyer on your side can help prevent legal issues such as fraud or unfair bargaining arrangements. Also, if you feel that your rights as a homeowner have been violated, your attorney can help represent you in court during a lawsuit.