4 Ways to Avoid Foreclosure

Foreclosure legal concept with gavel and wooden house

Nobody wants to experience a foreclosure on their house. Unfortunately, it happens. People lose jobs, get divorced, are hit with unexpected medical expenses, build up other high-interest debts, and get into bad financial situations in any number of different ways. It happens more often than you think. You fall a little behind on mortgage payments. Before too long, you are at a point where it’s almost impossible to catch up.

As mortgage forbearance options come to an end as part of the various pandemic relief packages, many homeowners will be faced with a situation where they have to make up those missed mortgage payments. It may be too much of an uphill battle and foreclosure could be on the horizon.

You want to avoid a foreclosure if you can. Obviously, you’d like to keep your house. That may not be an option, though. There may be other solutions to consider before you get to the point of foreclosure. A foreclosure can severely damage your credit and make it very difficult to buy another home in the future.

Here are 4 of the best ways to avoid foreclosure:

1. Talk to Your Lender

If you are worried about foreclosure or have gotten your first warning from your bank, reach out to your lender and see what options you might have. It’s important to remember that banks don’t like foreclosures either. It’s a complex process and they end up losing a lot of money, as well. They will do everything they can to help you avoid foreclosure. It’s rarely ever too late to find an alternative solution. You just have to talk with them and explore your options.

2. Bankruptcy

There are different bankruptcy declarations you might consider if really desperate. The best one to look at is Chapter 13, especially if you are still earning regular income and are willing to develop a plan to pay off your outstanding debts over the next 3-5 years. This form of bankruptcy may allow you to stay in your home, but eligibility may depend on your financial situation. Chapter 7 is another type of bankruptcy. However, it will not prevent the foreclosure. It may just delay it for a little while and help you eliminate liability for your remaining mortgage debt.

3. Deed in Lieu of Foreclosure

In this scenario, you basically sign over ownership of the property to the bank or mortgage lender in order to avoid the foreclosure process. It will still damage your credit score and is often thought of as a last resort option, but it may allow you to preemptively avoid the worst parts of the foreclosure process.

4. Sell Your House

Lastly, you should definitely look into selling your home before it is foreclosed upon. You might be surprised at how well this works out for you, even if you are still a little upside-down on your mortgage loan. If you have any equity in the property, you can use it to pay down the outstanding mortgage debt and potentially avoid foreclosure, credit damage, etc. In this scenario, you should aim to sell your house quickly and to a cash buyer—most likely a real estate investor. You won’t get top dollar, but you will get out from under the financial burden of the house.

What is a Short Sale?

In some cases where the house is worth less than what you still owe, the bank may work with you to perform a “short sale.” They would handle the sale the property at a reduced price to recoup what they can. A short sale can still damage your credit, but is less brutal than a foreclosure. The good news is that property values right now are very high and have been going up steadily year after year. Unlike the real estate market crash of 2008 where home values dropped, we shouldn’t see many short sales in the wake of the pandemic. Distressed homeowners should have more selling and financing options if they have good equity in their homes.

If you get a foreclosure notice from your lender/bank or you are just worried that you are getting too far behind on your mortgage payments, remember that you might have options. It’s better to act sooner than wait for the inevitable foreclosure. There are ways to avoid and prevent foreclosure on your house.

Contact PropertyLark today to explore your home selling or seller financing options, or to get a fair cash offer on your house within 24 hours. Just fill out the contact form on any page of this website to get your offer!