How to Avoid Foreclosure On Your Home
It's official. 2007 and 2008 were the worst years on record for home foreclosure cases. Ever since the Mortgage Bankers Association has been tracking foreclosure statistics, they have never been as high as in the last couple of years. So now more than ever, consumers need to educate themselves on ways to avoid foreclosure on their homes.
Elsewhere on this website, I've explained what led to the mortgage crisis, so I don't plan to repeat here. In this article, I'd like to focus on the ways to avoid home foreclosure in the first place. After all, this is what homeowners with mortgage trouble really want to know — how to avoid becoming another statistic by avoiding home foreclosure in the first place!
Foreclosure Avoidance "Paths"
Essentially, there are two directions you can go in when trying to avoid a mortgage foreclosure on your home. You have multiple options along each of these "paths," but for starters you must choose one of the two directions below:
- Path #1 - You will get caught up on your mortgage payments.
- Path #1 - You will avoid foreclosure by selling the home.
The goal of both paths is to avoid having your home foreclosed upon by your mortgage lender. That's what they have in common. But the obvious difference between these two paths is that one is intended to help you keep the home, while the other is intended to help you sell the home (and quickly) to avoid the foreclosure process.
To determine which is the right path for you to avoid home foreclosure you must ask yourself some tough financial questions. Mainly, you must determine if your financial troubles are temporary or more long-term in nature. To understand why this is important we must examine the two paths to foreclosure avoidance mentioned above...
Getting Caught Up On Mortgage Payments
This path is for people whose financial problems are only temporary. For example, if you had some unexpected medical expenses that caused you to miss some mortgage payments, but you are now "back on track" financially, you would probably fall into this category.
The thing to remember here is that your mortgage lender wants to avoid home foreclosure as much as you want to avoid it. So most lenders will work with homeowners / borrowers to come up with repayment plans that account for missed payments. These are referred to as mortgage workout solutions.
Typically, you have two options to get caught up on your missed mortgage payments. You can pay the amount owed (missed payments) as a lump sum, or you can spread that amount over future mortgage payments. These are the two most common ways to avoid home foreclosure when the homeowner's financial problems are only temporary.
Avoid Foreclosure by Selling the Home
The first path explained above is for people with short-term problems. But what about those cases when the financial troubles are more long-term in nature ... cases when the homeowner simply can't afford the mortgage payments anymore? In this case, we have the second path to foreclosure avoidance. The owner can sell the home to avoid having it foreclosed upon.
This is where the real estate short sale comes into the picture. A short sale is a technique through which the homeowner sells the home for less than the amount owed to the lender, in order to sell the home quickly.
With this technique for avoiding home foreclosure, speed is of the essence. That's why mortgage lender often allow homeowners to pursue a short sale in the first place ... to sell the home quickly and to get the non-performing loan off their books. This is the closest thing to a "win-win" scenario the lender and homeowner will find when foreclosure is imminent.
So to summarize, we talked about two paths to avoid home foreclosure that a homeowner might take. If the financial problems are temporary, the homeowner may work with the mortgage lender to come up with a repayment or reinstatement plan. However, when the homeowner simply cannot afford the home anymore, he or she may attempt to sell the home through a real estate short sale in order avoid foreclosure on the home (with all the negative financial impact that brings).
Obviously, there is a lot more to learn about these options for avoiding home foreclosure. The point of this article is (A) to help you realize that such options do exist, and (B) to help you ask yourself the right questions about your financial situation.