Alternatives to Foreclosure 'A Homeowner's Worst Nightmare'

Across the country bank foreclosures are at an all time high, with approximately 1.4 million mortgages in serious delinquency andanother 1.5 million homeowners already in foreclosure.

If a homeowner can't pay the obligations of their mortgage, their property rights are basically stripped away. Foreclosure is a homeowner's worst nightmare!

Foreclosure is the legal process by which a lender obtains a court ordered termination of a mortgagor's equitable right of redemption if the borrower defaults on the loan. The process can take anywhere form 6 months up to 18 months and can vary from state to state.

When the foreclosure process is complete, the lender can sell the property and keep the proceeds to pay off the mortgage including any legal costs involved. If the sale of the property does not cover the existing balance of principal and fees, the lender can also file a deficiency judgment against the borrower.

Foreclosure can be a lengthy and costly procedure for lenders as well as borrowers and both parties can benefit if foreclosure can be avoided. The type of mortgage a borrower has determines what types of alternatives they are eligible to pursue and that are best their individual situation.

Alternatives to Foreclosure

Options for avoiding foreclosure include the following:

Special Forbearance Plan - The lender temporarily suspends or reduces payments for a specific period of time. At the end of the forbearance period, the borrower must either make a lump sum payment or enter into a repayment plan to pay back the reduced or suspended amount.

Repayment Plan - The lender agrees to a repayment plan, where by which the borrower makes their mortgage payment plus a little more each month to cover the total default amount over a specified period of time. The lender may require an initial good faith payment to begin the plan.

Mortgage Modification - The borrower is allowed to refinance the debt or extend the term of their existing mortgage. Depending on the interest rate of the new loan, monthly payments might be reduced.

Partial Claim - If the loan is FHA insured loan, the lender may be able to obtain a one time, interest free payment from HUD that will bring the mortgage loan current.

Assumption - The borrower signs over the property to someone else, who takes procession of the property and the responsibility of making the payments.

Pre-Foreclosure Sale - The lender allows the borrower to sell the property for an amount less than what is required to pay off the mortgage loan (short sale) in lieu of foreclosure.

Deed In Lieu Of Foreclosure - The lender agrees to let the borrower voluntarily "gives back" the property. This option is usually considered to be "the last resort." The borrower receives no equity from the sale of their home, but they avoid the legal costs of foreclosure and preserve their chance of getting a mortgage down the road.

Avoiding foreclosure is a win-win proposition for both lenders and borrowers.