When a homeowner is unable to make principal and/or interest payments on their mortgage, the lender, a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract. Foreclosure is usually the last resort and there are some solutions for long-term problems to avoid foreclosure.
Your lender will determine if you qualify for the following alternate solutions. Also, a housing counseling agency can help you with your options, plus interact with your lender on your behalf.
If you can currently make your regular payment, but can’t catch-up on the past due amount, the lender may agree to modify your mortgage. One way is to add the past due amount into your existing loan and finance it long-term. Mortgage Modification may also be possible if you no longer can make your payments at the former level. The lender may modify your mortgage and extend the loan length, or perhaps take steps to reduce your current payments.
Foreclosure can be avoided by selling your property for a lesser amount necessary to pay off your mortgage loan. You may qualify if:
- The loan is at least 2 months delinquent
- The house is sold within 3-5 months
- A new appraisal, that the lender will obtain, indicates that the home value meets program guidelines.
Deed in Lieu of Foreclosure
This is when the lender allows you to give back your property and forgives the debt. It does have a negative impact on your credit record. However, it’s better than foreclosure. The lender may require that the house be “For Sale” for a specific time period before agreeing. This route may not be possible if there are other liens against the home.
For FHA Loans
The lender may assist you in getting a one-time payment from the FHA Insurance Fund. The homeowner must prove the ability to resume making full mortgage payments on time, and other conditions apply:
- A Promissory Note must be signed allowing HUD to place a lien on your property for the amount received from the FHA Insurance Fund.
- The note is interest-free but must be repaid eventually.
- The note becomes due when you pay off the loan, transfer title, or sell the property.
For VA Loans
The Veteran’s Administration Loan Centers offer financial services designed to help homeowners avoid Foreclosure and options for your specific situation.
Foreclosure: Other FAQ