Just Finance Information

Avoiding Foreclosure

November 7th, 2007 Subscribe To Our Feed

Avoiding Foreclosure Requires Prompt Action

Most homeowners have a mortgage on their homes and routinely make monthly payments to pay off the loan, thus protecting their ownership of these homes. The problems start when, due to changes in cirumstances - perhaps a job loss or an illness - the mortgage payments become difficult to pay. Many people find this mixture of personal problems and business arrangements to be very difficult and real problems can result when the homeowner allows embarrassment to get in the way of dealing with the lender.

How to Approach Your Lender

If you can understand that defaulting on a mortgage is a problem for the lender as well as you, it might be easier to ask for help in avoiding foreclosure. Borrowers often think that mortgage problems are unusual and have the feeling that he or she is asking for special treatment. But this is not the case. When the borrower can see that possible repayment plans for late payments are easy to understand and follow, they may actually manage to be successful in avoiding foreclosure.

The facts are that:

- mortgage lenders lose an average of nearly $60,000 on every foreclosure - well over half of mortgage borrowers fall dangerously behind on payments - lenders are both motivated and experienced in arranging repayment plans to assist in avoiding foreclosure.

As soon as a homeowner realizes that there is going to be a problem in making payments they should contact the lender and explain. If necessary, a third party can negotiate on behalf of the borrower.

There are five types of plans that are most often used for avoiding foreclosure:

A partial reinstatement plan can be set up when a short-term drop in income or increase in expenses leads to the missing of several payments but it is expected that the borrower will return to the previous ability to make full payments. This allows the payer to resume regular payments once it is possible while making up the missed payments in smaller payments over the course of a specific amount of time.

Another alternative is short-term forbearance which can suspend as many as three payments or reduce payments for as long as six months.

A repayment plan, as with the partial reinstatement plan, allows the missed or reduced payments to be made up while resuming the full payments.

When necessary, long-term forbearance can be put on a basis that stretches between four to twelve months. This can take the pressure off and result in avoiding foreclosure.

If the income loss is permanent, loan agreement modifications can be made. The loan period can be extended for lower payments or interest can be renegotiated. Sometimes the FHA will pay the money for missed or late payments to bring the loan up to date and will then arrange for repayments after the home is sold or the mortgage is paid off. Avoiding foreclosure is the best option for everyone involved.