"4 Ways To Avoid Foreclosure" 

A Deed in lieu of foreclosure is a deed instrument in which a the borrower conveys all interest in a real property to the lender to satisfy a loan that is in default and avoid foreclosure proceedings.

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy.

In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntary. Generally, the lender will not proceed with a deed in lieu of foreclosure if the current fair market value of the property exceeds the outstanding indebtedness of the borrower.

Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily.

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

Forbearance Agreement

Mortgage lenders and servicers commonly offer forbearance agreements to defaulting borrowers to enable them to save their homes from foreclosure by curing their delinquency over the term of the agreement while continuing to make regular, monthly mortgage payments. Special Forbearance (SFB) is a written repayment agreement between a mortgagee and mortgagor, which contains a plan to reinstate an asset that is minimum three mortgage payments due and unpaid.

Short Sale

A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, someone is purchasing the property directly from the lender for a discount. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $200,000. Someone write an offer to the lender for $170,000, which is accepted as full payment for the loan. This is a short sale. Why are lenders willing to take such a discount? Several reasons. First of all, banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can sell the property without a huge loss, they will do it. Secondly, lenders know they could lose a lot more money if the property goes to auction. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all.

Bankruptcy Chapter 13

One may also resort into filing a bankruptcy 13 to avoid foreclosure. Most lawyers advise their clients to file for bankruptcy. This is better than allowing one property to be foreclosed. However, borrowers may still be stuck in having bad credits even after they have filed bankruptcy. That is why it is important that the person always consult any decision with a lawyer. Bankruptcy is a last alternative and should be avoided if possible.

Generally, chapter 13 is preferred by debtors who have a valuable asset, such as a home, that is not completely covered by exemptions and that they wish to keep. This is possible because under Chapter 13 a debtor proposes a plan to repay creditors over a three to five year period during which the debtor can make up overdue payments on any assets and pay into the plan the equivalent value of any assets not covered by exemptions. Since the debtors plan will require regular monthly or biweekly payments, Chapter 13 is usually only appropriate for an individual debtor who has a regular source of income.

Those under a Chapter 13 bankruptcy are still obligated to pay their debts, but do so under a three- to five-year court-supervised plan. Under Chapter 7 bankruptcies, debts are discharged.

Once you're out of Chapter 13 or when a couple years have gone by, you will likely be able to refinance with a traditional bank and get a better loan.

Avoid adjustable-rate mortgages, or ARMs. These are loans with an initial "teaser" interest rate that will adjust after a period of time. If interest rates rise, your monthly payment could increase significantly. The loan broker may try to assure you that your credit will improve after two or three years, and therefore recommend an ARM. This is not always true. Sometimes credit scores do not improve as quickly as you would hope.

Many homeowners have been able to save their home from foreclosure after filing Chapter 13 bankruptcy.

Be very wary of working with any lender that offers only a home equity loan to pay off your creditors. The rate is likely to be exorbitant; it might overextend you and risk your property. Trustworthy lenders will offer fixed-rate, first-mortgage options as well as home equity (second mortgage) options. The rate will be higher than the rate from a traditional bank mortgage loan, but the reward of getting out of bankruptcy may be worth it.

It's All About You!