Default is not necessarily a bad word, but it makes a blinking red light flash in front of your eyes. After default, comes foreclosure, but wait a minute... you still have a rifle full of bullets to shoot off the vultures. Let us see what alternatives there are and what the outcome may be.
Problems Are Here
Whichever the problem, you have not enough money to go round and you begin to pay late. In the end, you just can not hold it any longer and you cut the line. Default is here. What next? Before we start thinking about foreclosure or repossession, there are some alternatives that depend mainly on what you do with what you have. It will make all the difference in the world.
The Alternatives
If you have missed a payment and have the means to make up for it in the near future, say a month or two, see your lender immediately and explain the situation. Although it will cost you a few bucks on punitive interest, it is not so bad. You will get by. The problem comes when you can not continue paying.
Private Lenders
They are in the business of lending money, not administrating real estate. So, the target is to sell the property as soon as possible. You may be able to keep it if the total debt you have does not exceed 40% of your income, but it will mean talking to your lender and negotiating a solution. Lenders want the loan to be in force, not to repossess. Remember your credit rating can be harmed very much with the process of foreclosure.
A Good Explanation
Try to explain honestly and as clearly as possible, why he should not execute repossession, meaning, why you have defaulted and why you think you will be able to recommence payments. One solution could be a short term repayment plan. This means that you recommence payments and those that were left out are refinanced and spread out over a short term and added to your normal payment.
Forbearance
This is an act in writing signed by the lender, by which he refrains from taking legal action and accepts a short term payment in order to avoid repossession. It is the legal document that gives way to the emergency payment plan and can be done if the borrower shows a strong desire to keep the property and shows the means with which to pay. Also there is a formal application in which your past credit history is evaluated.
Refinancing
Even having missed payments, there is a possibility to refinance. This is done to lower the interest rate, lengthen the payment term, change from fixed rate to adjustable or vice versa or all changes together.
If All Else Fails
Before foreclosure and depending on whether the property has enough equity, you are allowed to sell and pay off the mortgage before the stain falls on your credit report and affects your ratings. This will be possible if the appraised value is enough to repay and the property is in good condition for a sale within 90 to 120 days.
On some occasions, the borrower will be allowed to sell at a lower price than needed to repay the mortgage if he is having serious financial hardships or if he will not receive any cash from the operation.
Deed-In-Lieu Or DIL
This is the final alternative. The borrower can not sell or does not want to sell or shows no interest in selling. So he issues a Deed-in-lieu which is a voluntary conveyance of the title in exchange for the cancellation of all the debt.
So, you see, there are instances before losing the property. Keeping it will depend largely on your attitude.
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