When a foreclosure happens, no one truly wins – not the bank, not the real estate market and certainly not you. In a foreclosure, the bank typically takes a loss on their loan, the market receives a property that cannot be sold for top value, and you lose the most important thing of all – your home.
If you received a notice of foreclosure, the time to act is now. You may still have options to avoid foreclosure. Here are five of them:
Option 1: File bankruptcy.
This may seem counterintuitive. After all, won’t the bank get your house if you file bankruptcy? Maybe, but this isn’t the case for many people.
First of all, filing bankruptcy stops any collection proceedings currently in motion, including foreclosure. This means that if the sheriff’s sale hasn’t happened yet, it can’t proceed until your bankruptcy has been discharged. If nothing else, this will give you time to decide on your next course of action without the worry of having your home sold out from under you.
Secondly, with bankruptcy you could protect equity in your home by exempting it from the bankruptcy altogether using Florida’s exemption laws. If you file Chapter 13 bankruptcy, you can generally roll past-due mortgage payments into your repayment plan. That means you can make good on some of those payments while also taking care of other debts, like credit card debt, that were eating into your mortgage payments in the first place.
A bankruptcy lawyer can help you determine whether filing bankruptcy is a good option for your case.
Option 2: Set up a repayment plan with your lender.
Some lenders are amenable to setting up payment plans for those struggling financially. Legally, this is called a special forbearance. It temporarily reduces or suspends your mortgage payments so you can get caught up. Generally speaking, special forbearances are only available to those who have experienced a temporary financial setback, like a medical emergency. The terms of your agreement will be specific to your situation and your lender’s policies.
Option 3: Negotiate a loan modification.
Loan modifications are not always easy or optimal, but they may be possible for those in financial distress. Modifying the terms of your loanmeans it may take longer to pay it back, but it can be a viable option for avoiding foreclosure if you are headed in that direction.
Florida even has a specific loan modification program for struggling homeowners. This program, called the Mortgage Modification Mediation (MMM) program, is aimed at helping people keep their homes by renegotiating and reaffirming their mortgages.
Option 4: Consider a short sale.
Granted, a short sale does not allow you to keep your home. But, it may make the most fiscal sense if you are “under water” on your mortgage, meaning that you owe more on the house than the house is worth. Short sales are tricky and have several requirements, including proof of financial hardship. Furthermore, there is no guarantee that the bank will accept a short sale solution.
Therefore, before pursuing a short sale, it’s important to discuss your circumstances with an attorney who has demonstrated experience handling short sales as a way to avoid foreclosure.
Option 5: Walk away.
There is no shame in walking away from your home. As your circumstances change, it may make more fiscal sense to simply move on. To avoid damaging your credit with a foreclosure, you should discuss the best way to walk away with a skilled lawyer. If you have time, you may be able to sell the home and move into more affordable housing. You could also discuss whether a short sale is possible with your lawyer and lender.
Walking away can be an emotionally tough decision. As with all major decisions in life, it’s good to get outside input, preferably from professionals who understand what you’re going through. A lawyer who concentrates on helping consumers find debt relief will likely be the best resource for helping you avoid foreclosure.