by Srikanth Radhakrishna

Created on: March 13, 2011   Last Updated: March 16, 2011

Foreclosure is a legal process by which an owner's right to a property is terminated.  The property is usually foreclosed due to the inability of the homeowner to repay the loan.  Foreclosure has a huge negative impact on homeowner's credit score.  

It is unfortunate that many homeowners are losing their homes due to a lack of education and panic.  There are many options for homeowners to avoid foreclosure.  Here is a brief description of some of them:

1)  Loan reinstatement:  Reinstatement of a loan involves clearing all past dues and bringing the mortgage to a current status.  It may be challenging, but it is definitely the best way to avoid foreclosure.  The homeowner should work with the lender.  

2)  Repayment plan:  Repayment plans are an arrangement between the homeowner and lender.  Here the lender allows the homeowner to catch up for past due amount over a period of time, by making larger monthly payments. But homeowners should insist on a written agreement.  It is a good idea to get the agreement reviewed by an attorney before signing. 

3)  Deed in lieu of foreclosure:  This helps in preventing foreclosure.  Here, the homeowner conveys all interest in the property to the lender.  This saves time and expenses for both the home owner and the lender.  

4)  Loan modification:  Here, the loan is modified by the lender in response to the home owner's inability to repay the loan.  It may involve a reduction in interest rate,  an extension in the team of the loan or a combination of both.

5)  Short sale:  This is a sale of property in which the sale proceeds fall short of the balance owed on the loan.  A short sale occurs when a home owner is unable to repay the loan on the property, but the lender decides to sell the property at a moderate loss.  Both parties consent to the short sale process.  

6)  Bankruptcy (Chapter 13):  This should be the last resort, but this stops foreclosure.  The impact on credit score is less in the case of bankruptcy when compared to foreclosure.  

Homeowners should constantly be in touch with their lenders and should always be willing to work with them.  Many homeowners on the brink of losing their homes to foreclosure have worked with their lenders and have successfully retained their homes.  There is absolutely no need to panic.  It is a good idea to consult experts in the field in an endeavor to identify the best option to avoid foreclosure.  Some law firms offer free initial consultation.  

References:

www.mortgagefit.com

www.investopedia.com

www.sglawblog.com

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