When faced with a looming foreclosure, there are a few steps you can take to possibly stop it.
Raising Additional Funds
Whatever happens, don’t panic. Are there any friends and relatives that might be able to help?. Are there any savings or assets such as a vehicle that can be sold to raise cash? If not, contact a HUD approved housing counselor, even if you do not have an FHA loan. Next, contact the lender whenever a payment is missed. Putting that off only makes matters worse.
With a deed in lieu of foreclosure, the lender accepts the return of your title but may sue you for any loss and report loss to the IRS as taxable income. If the property was bought with less than 20% down the private mortgage insurer may allow a claim advance to pay the delinquent amount for a few months, then add them to the end of the loan. If you have been affected by flooding, a hurricane, or other disaster your mortgage lender may allow deferring payment for a few months.
Other options open to the lender include a forbearance, where they may write off about 3 monthly payments entirely. A modification changes the interest rate to current market rates and/or extends the term of the loan. With a re-amortization, the remaining balance is added to the end of the loan. Be aware this could raise your monthly payment. If it’s a Va loan, the VA can buy the loan from the lender, this is called a refunding.
In a reinstatement, after 2 or 3 missed payments you pay whatever you owe plus late fees and the loan continues without change. With a repayment plan, a small amount is added to the monthly payment until the loan is current.
By refinancing, the loan is changed from adjustable rate to a fixed rate, or to a lower interest rate.
By doing a short sale, the lender may be willing to settle for less than what is owed to them, and specify a date to find a buyer. This may result in owing income tax.