Foreclosure & Alternatives Law

Alternatives to Foreclosure

It can be very stressful to face a home foreclosure. Homeowners and their families who cannot afford to make their mortgage payments may feel that there is no alternative to letting their mortgage holder foreclose on the property. However, foreclosure is not a foregone conclusion and there are options available that individual homeowners and their mortgage providers can consider.

In some circumstances, it might make sense to renegotiate the mortgage terms. Lenders are usually more willing to consider this option if the homeowner is facing a temporary decrease in income and has a strong likelihood of an increased income again in the near future. For those homeowners, a lender might be willing to lower the interest rate on the mortgage or extend the length of the mortgage in order to lower the monthly payments.
In extreme circumstances, a lender may agree to a temporary reduction or suspension of payments if a specific schedule is set for the homeowner to pay the difference over a certain amount of time.  

Depending on your financial circumstances, you might be able to refinance your home. If you have equity in your house you might be able to borrow money from that equity in order to pay past due mortgage amounts. The interest rate on the new loan might be lower than your original mortgage rate and you might end up with smaller monthly payments going forward.

Seek Assistance
The federal or state government might be able to provide you with assistance if you wish to stay in your home and you qualify for their programs. If you have an FHA insured loan, for example, your lender may be able to get a one a time payment from the FHA insurance fund that will bring your mortgage payments up to date. Similarly, some states have homeowners’ mortgage assistance programs that can provide assistance to homeowners who wish to remain in their home and avoid foreclosure.

Sell or Transfer Ownership – Regular Sale or “Short Sale”
If you do not wish to remain in the home and you are facing foreclosure then you have a few options available to you. All of these options are less likely to affect your credit rating to the same degree that a foreclosure would affect it. For example, you could try to sell your home. Depending on the amount of your mortgage, you might receive enough from the sale to pay off your existing debt and have some profit. If you can only sell your home for less than what you owe on it, your lender might agree to it anyway – this is called a “short sale.” 
If a quick and profitable sale is unlikely then you might decide to sign your property over to another person. While you will not profit financially from this type of relationship, you will no longer be responsible for the mortgage payments and your credit rating will not reflect a foreclosure.
Finally, if neither of the options above are feasible then you might decide to pursue a deed in lieu of foreclosure. This means that you give ownership of the property to the lender without a foreclosure sale.
It can be financially and emotionally overwhelming to face a possible foreclosure. However, a foreclosure can have a long lasting impact on your credit rating and future ability to obtain a loan. Therefore, it is important to consider all of the options available to you if you are unable to make your mortgage payments and are facing foreclosure.