Exploring options to avoid foreclosure
There are alternatives to foreclosure for homeowners at risk of losing their homes.
Falling behind on mortgage payments often leaves homeowners feeling there are no options available. This is not the case. By taking action to either prevent or avert foreclosure, homeowners gain some measure of control over their situation. Knowing that there are alternatives to having your home foreclosed on can make the hard choices easier.
When circumstances create financial hardship, making the mortgage payment, often the largest monthly payment, can be overwhelming. This is a good time to take a hard look at your spending plan and current financial circumstances and make some decisions as to whether the situation is permanent or temporary. Though most economists agree that the recession is over, there are still many households struggling to make ends meet. Many programs offering assistance to homeowners struggling to maintain their mortgage payments have ended, but there are still options.
The first step to take if the mortgage payment is late is to contact your lender. There are alternatives to enable homeowners get caught up and retain their homes. Some of these are:
- Modify the loan – change the terms of the mortgage to make it more affordable.
- Forbearance – defer payments for a period of time to give homeowners time to get caught up.
- Reinstatement – making more than the normal payment until the mortgage is current.
If continuing to make the mortgage payment is not a realistic choice or if an agreement cannot be reached with the lender, homeowners can decide to sell their homes on their own. Even if the value is less than what is owed, homeowners have the right to market and sell their home to avoid foreclosure. Selling your home for less than is owed is called a short sale. To take this path, the lender must agree to the sales price before the home is sold. Communicating with your lender is a key element during this process and can extend the time it takes to sell the home. However, not getting the lenders approval could mean the sale falling through if the sales price is less than the amount owed.
If the homeowner has tried unsuccessfully to sell the home and there are no other solutions to the delinquency, they may offer to deed the home back to your lender. This is called a deed in lieu and allows homeowners to transfer ownership back to the lender. The important thing to remember with this action is to make sure the lender is willing to forgive the entire balance owed in return for the deed. If the lender accepts the deed and there isn’t an agreement in place to waive any deficiency balance after the sale, the homeowner can end up owing a balance on a house they no longer own.
Either of these alternatives can be a better option than a foreclosure. They’re not as hard on your credit score and they allow the homeowner some choices regarding their future in the home if retaining it isn’t feasible.
Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at the MI Money Health website.
To contact an expert in your area, visit the expert page, or call 888-MSUE4MI (888-678-3464).
Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, go to either events page or the MI Money Health website. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health.