Foreclosure Prevention Plans: Why Every Homeowner Should Have One

By Antoinette SmithMarch 19, 2020

Preventing avoidable foreclosures helps keep families in their homes, preserves communities and prevents avoidable loss of housing. Creating a foreclosure prevention plan with the help of a HUD-approved housing counselor can provide assistance to struggling homeowners, with the goal of helping them keep their homes whenever possible.

There are a number of programs available for homeowners who are struggling with their mortgage payments. Here are a few options, as well as how they will impact our credit and help us remain at home:

Refinancing

Refinancing allows us to secure a new mortgage loan with new terms, including a new interest rate and/or monthly payment. This replaces our current mortgage and may help make mortgage payments more manageable within our budget. Even if our home value has decreased, making our home worth less than we you owe on our mortgage, we may be able to refinance our loan.

Refinancing:

  • Makes our monthly mortgage payment more affordable by lowering our interest rate and/or adjusting the terms of our loan
  • Will not have any negative impact on our credit score
  • Allows us to stay in our home and avoid foreclosure

Repayment Plans

A repayment plan is a personal agreement we can make with our mortgage lender. It allows us to pay the past due amounts on our mortgage payments over a specified time period in order to bring our mortgage up to date. Mortgage lenders are often willing to work with homeowners to make special payment arrangements in order to avoid the expense and potential losses that would be caused by foreclosure.

Repayment plans:

  • Allow us to catch up on past due payments over an extended period of time
  • May be less damaging to our credit scores than foreclosure
  • Helps us stay in your home and avoid foreclosure

Forbearance

Forbearance is an offer by our mortgage lender to temporarily reduce or suspend our monthly mortgage payments for a specified period of time. This can give us the breathing room we need in our budget to regain our financial control before our regular monthly payment schedule is reinstated. We can get back on the road to financial stability without losing our home to foreclosure.

Forbearance:

  • Gives us time to improve our financial situation so we can get back on our feet
  • May be less damaging to our credit scores than foreclosure
  • Helps us stay in our home and avoid foreclosure

Mortgage Modification

Mortgage modification is an agreement with our mortgage lender to change the original terms of mortgage, such as the payment amount, the length of our loan or amortization schedule, and more.

Mortgage modification:

  • May reduce our monthly mortgage payment so they are more affordable for our budget
  • May be less damaging to our credit scores than foreclosure
  • Helps us stay in your home and avoid foreclosure

Short Sale

A short sale is where our home is sold for less than the balance remaining on our mortgage. In a normal sale, the sale price will be more than what is still owed on the mortgage, but a short sale leaves the balance owed with our mortgage lender. However, if our mortgage company agrees to a short sale, we may be able to sell our home and pay off our mortgage balance with the proceeds. It’s important to note that our lender may require us to cover any remaining balance owed once the short sale is complete. This is known as a deficiency judgment.

Short sales:

  • Eliminate or reduce our mortgage debt
  • May include relocation assistance
  • May provide faster credit score recovery so we can get another mortgage faster than if we went through foreclosure

Deed-in-lieu of foreclosure

With a deed-in-lieu of foreclosure (DIL), we can transfer the ownership of our property to our mortgage lender in exchange for a release from our mortgage and monthly loan payments. Effectively, we return the deed to the mortgage company so they can sell the property to recoup their losses. It’s important to note that in some cases, the lender may pursue a deficiency judgment against us if the sale price of the home is less than the remaining balance owed on our mortgage, just as with short sales.

Deeds-in-lieu of foreclosure:

  • Eliminate or reduce our mortgage debt
  • May include relocation assistance
  • May provide faster credit score recovery so we can get another mortgage faster than if you went through foreclosure

If we need assistance as we work to save our home from foreclosure, we can seek a HUD certified housing counselor who has the experience necessary to help us develop our own personal plan of action. Foreclosure prevention counseling is FREE and confidential.