Many homeowners don’t realize there are alternatives to foreclosure and bankruptcy. If you are unable to make your mortgage payments, your lender may have programs that you qualify for that could help you avoid foreclosure. Most lenders prefer to avoid foreclosure, if possible, because it can be a costly undertaking for the lender. By the same token, if you are struggling to make payments on unsecured debt, bankruptcy may not be the best option for you. You should exhaust all options before pursuing bankruptcy, because there is a significant negative affect to your credit rating for many years with bankruptcy.
Instead of foreclosure, your lender may be able to offer you a forbearance agreement. With a forbearance agreement, the lender allows you to either reduce your mortgage payments or delay mortgage payments for a temporary period. After that time, you are required to bring your account up to status. Forbearance agreements are usually good for people who have had a sudden loss in income and need time to recover financially to bring the account current.
The lender may be able to offer you a repayment plan to bring your account current. Call your lender to explain your financial difficulties and ask him to reinstate the loan. The lender may require a lump sum payment, set you up on a payment plan to bring the loan current, or require some combination of those two options. Once you agree to a repayment plan, be sure to stick to it, or you could automatically end up in default of your mortgage.
If you are having problems making payments on your unsecured debt, you may want to consider debt settlement. If you have experienced a financial hardship such as job loss and gotten behind on your payments, then your creditors may be willing to work with you to settle the debt. Each creditor has its own set of rules on how it will handle debt settlement. Some may require a lump sum payment to settle the debt, while others may be willing to take payments over a set period. Contact your individual creditors to see what options may be available to you.
Deed in Lieu
With a deed in lieu, you voluntarily give the property back to the lender. Although there is still a negative effect on your credit, you have a better chance of qualifying for a mortgage sooner than with a foreclosure. A deed in lieu may be a good alternative for someone who can no longer make their mortgage payments and does not expect to turn the situation around soon. Most lenders require you to at least try to sell your home before offering you a deed in lieu. In the event, you are not able to sell the home because the market is slow, the lender may allow you to walk away from the home without owing on the mortgage. This option is better than a foreclosure because it saves money for the lender, and the borrower avoids having to go through the stressful process of foreclosure.