The North Fulton Blog

Many homeowners facing foreclosure believe that there is nothing they can do to avoid it.  But there are 11 options available to avoid foreclosure.  They are:

Reinstatement

Forbearance or repayment plan

Sell the property

Rent the property

Refinance

Mortgage modification

Short re-fi

Deed in lieu of foreclosure

Bankruptcy

Servicemembers Civil Relief Act (SCRA)

Short Sale

Reinstatement - A reinstatement requires that a homeowner pay all missed payments, late fees, and legal fees that are due up to the date the loan is reinstated.  The amount owed is time sensitive and will increase usually after 30 days. 

Forbearance - If the issue that caused the homeowner to miss payments was temporary and the owner is unable to make a full reinstatement payment, they may be able to negotiate a forbearance or repayment plan.  The lender will allow the borrower to pay the missed amount over a period of time, in addition to making their regular monthly payment.  This will probably require the owner to show that the hardship has passed and they are capable of making future, larger payments until they're caught up.  NOTE:  Typically, a mortgage is not fully reinstated under this repayment plan until all payments are made in full.  If a homeowner misses one payment, the lender can and usually does, reinstate the foreclosure process at the stage they were in previously. 

Sell the Property - If the owner has equity in the home, they can sell it and use those funds to cure the foreclosure.  The biggest problem with this alternative is that homeowners believe they have to hurry and sell the property, take the first offer they receive and it's less than what they need to cure the foreclosure.  If they had a smart agent to advise them, they would immediately change over to a short sale and proceed to closing.  Unfortunately, there are so many homes with a mortgage that are "upside down" that this option doesn't always work.  The estimate is that currently 50% of all homes with a mortgage are upside down.  As the economy and unemployment situation creep along, this percentage is sure to rise. 

Rent the Property - In some cases a homeowner facing foreclosure can rent the property to cover his mortgage.  This is a short term solution since when the taxes and insurance payments are due, many homeowners can't make those payments.  The lender will force them to start an escrow account to cover the insurance and taxes, raising the monthly mortgage note higher than the rent can cover.  Another potential problem to consider is if the homeowner is renting out their home, where are he and his family going to live? 

This has been a brief explanation of some of the alternatives available to those facing a foreclosure situation.  I would strongly advise homeowners considering one or more of these alternatives to speak with a legal and financial adviser before proceeding.  If they decide to proceed, then they should seek the assistance of a real estate professional for those alternatives involving a change of ownership.  We will continue with this discussion further in my next post.