Considering Alternatives to Foreclosure on Your Home - dummies

Considering Alternatives to Foreclosure on Your Home

By Ralph R. Roberts, Lois Maljak, Joseph Kraynak

Facing foreclosure, homeowners often assume they have only two options for dealing with the foreclosure — pay up or move out. However, there are several alternatives to consider.

The following options may provide some viable foreclosure alternatives:

  • Forbearance: Delays any collection activities, including a foreclosure sale, so homeowners have time to explore their options or obtain gainful employment.

  • Bankruptcy: Is often an ideal solution for homeowners drowning in unsecured debt, such as credit card debt.

  • Loan modification: Helps to make the monthly payment more affordable and allows homeowners to catch up on missed payments.

  • Reinstatement: Allows homeowners to bring their payments current, as if nothing happened. This option is only for homeowners who have recovered from a temporary setback.

  • Refinancing: Puts homeowners in a lower-interest, fixed-rate loan.

  • Short refinancing: Puts homeowners in a lower-interest, fixed-rate loan for an amount less than is currently owed on the home.

  • Government loan programs: Includes HomeSaver Advance (HSA), which allows homeowners to catch up on late or missed payments.

  • Selling the home: Allows homeowners to get out from under an unaffordable home and cash out any equity in it.

  • Short sale: Involves selling a home for less than the unpaid balance without owing the lender anything after the sale.

  • Selling to an investor: May be appropriate when time to explore other options is close to running out and the investor has the resources to save the home (and the integrity to help). This option often requires a substantial amount of equity that the homeowners are unable to tap into because of credit or employment issues.

  • Redemption: Involves buying back the home after the foreclosure sale. This option isn’t available in all states.

  • Deed in lieu of foreclosure: Gives the property to the bank, and the homeowners walk away without owing anything on it.

Finally, you may be wondering about the following two options. But be aware that they aren’t bona fide foreclosure alternatives, because you still end up losing your home in foreclosure.

  • Abandoning the home: This is only an option after you’ve exhausted all other options and can’t deal with the lender.

  • Doing nothing: This is one of the worst options, second only to falling victim to a foreclosure rescue scam.

If you’re considering either of these last two options, beware of the possibility of a deficiency judgment. In states that allow deficiency judgments, your lender may try to force you to pay the difference between what you owed the lender and what the lender recouped through the sale of your home.