How a Foreclosure Bailout Loan Can Help You Avoid Foreclosure

A foreclosure bailout is a type of loan that is made to the owner of a distressed property in an effort to assist them to prevent foreclosure on their home or property. It is, essentially, a short-term, 12- or 18-month lease and buy-back loan. It will leave you still in possession of your property, albeit at less than ideal terms.

Particular lenders, called equity lenders or hard moneylenders, specialize specifically in this type of loan. They will offer you a foreclosure bailout by entering into a contract with you to purchase your home for a 12-month period, and then re-sell it to you at that time at the same price they paid for it.

Typically, the property's Loan to Value (or LTV) ratio has to be at least 85%. This means that you must have at least 15% equity in the home to qualify for this service and be approved for it.

Your credit score as well as your employment history will be reviewed, but these usually are not a primary deciding factor in the approval or denial of the foreclosure bailout loan.
For the most part, you just have to prove your ability to repay the monthly payments of the loan.

Foreclosure Bailout Loans have some detrimental aspects. The interest rates charged are usually pretty hefty at about 12%. On the other hand, this loan can be used to remain in control of your home or property and any equity you may have accumulated in it.

One of the main advantages of a foreclosure bailout loan is that the lender will often, (though not always) write what is referred to as a negative amortization loan. This is basically an interest only loan that helps make the re-payment amounts more affordable and enable the homeowner to feasibly make their payments on time. Once the period of the foreclosure bailout loan expires, usually 12 months, but sometimes 18, the home will no longer be in foreclosure.

The lending company that afforded you the foreclosure bailout loan will then transfer the ownership of the home back to you, typically at the same price at which they bought it. There is no requirement for a down payment to carry out this transfer of the home back into your name. The lender offering you the foreclosure bailout loan will issue a gift of equity; this takes the place of your down-payment in this transfer. This aspect of this type of loan is also one of the reasons for the pre-requisite of the 15% equity in the home.

Most lending companies that offer these bailout loans are not interested in taking over ownership of your home, but rather in collecting the interest payments on the loan. It is in fact not in their best interest to keep and re-sell the property unless you default on the payments.

As with any loan of any type, it is imperative that you do your research on the lending institution involved.
As with this, and any other type non-traditional loan, it is always in your best interest to check out the company involved. Read consumer reports as well as their financials to ensure that what you contract for in any offer for a foreclosure bailout loan is exactly what you will get.