Three Options for People Facing Foreclosure

If you’re falling behind on your mortgage, the fear of foreclosure is likely looming. However, financial difficulties don’t necessarily have to mean losing your house. Here are three alternative options that homeowners facing foreclosure should explore.

Loan Modification
This option involves working directly with the bank or lender that holds your mortgage in an attempt to modify the terms of a loan that is delinquent so that you can afford to stay in the home. This could include lowering the interest rate, extending the length of the loan to lower payments, or both. Those with a loan through Fannie Mae or Freddie Mac may be eligible to refinance into a loan with a lower interest rate through the government-backed HAMP program. Counselors from government programs like Making Home Affordable or from reputable nonprofit organizations can help you work with your lender. An attorney who specializes in real estate can also be of assistance. Loan modifications take about a year to complete; to apply, you’ll need to gather documentation like 30 days of pay stubs, a credit report, and a hardship letter describing the circumstances that caused you to fall behind on mortgage payments.

Chapter 13 Bankruptcy
If you are unable to pay your mortgage because you’re in substantial debt, Chapter 13 bankruptcy could allow you some financial breathing room without losing your home. If you qualify for this type of bankruptcy, the court will create a payment plan to relieve your debt and prevent your lender from foreclosing. Because this option will damage your credit for up to seven years, it should be a last resort for buyers who are behind on payments but want to stay in their homes.

Selling the Home
Homeowners who can no longer afford their homes and are facing foreclosure may want to consider selling the home prior to foreclosure. If this describes your situation, you can see if your lender is amenable to a deed in lieu of foreclosure. With this type of program, the lender accepts the deed for the home and you agree to move out with the property in good condition, avoiding the credit impact of a foreclosure. An option for those who owe more than their home will sell for is a short sale. In this type of sale, the lender agrees to cancel the balance of the mortgage if the home sells at market value. Programs like the one at can help short sell homes quickly. While short sales and deeds in lieu will damage your credit, it’s not as dramatic as the hit from a foreclosure.

Regardless of which of these three options you choose, good professional advice is essential to protect your interests and make the best choice for your family to avoid foreclosure. For example, homeowners who want to pursue a short sale should hire a seasoned realtor that specializes in those types of sales in their area. And if you begin to fall behind on your payments, talk with your lender. He or she may be willing to work with you to find a solution.