Most US home buyers get a mortgage, which is a loan from a bank or lender that must be paid back monthly. If payments are missed, foreclosure proceedings can begin. Alternatives include refinancing, selling the home, a deed in lieu of foreclosure, or filing for bankruptcy protection. A substitute foreclosure deed can avoid additional debt and public foreclosure. Filing for bankruptcy can also prevent foreclosure.
Most home or real estate buyers in the United States get a mortgage when buying a home. A mortgage is essentially a loan from a bank or other lender for the purchase price of the home. The buyer must then make monthly payments to the lender until the loan is paid in full. When a debtor is late on payments, the creditor can initiate foreclosure proceedings. A homeowner facing foreclosure may have foreclosure alternatives, including refinancing the home, selling the home, enforcing a deed in lieu of foreclosure, or filing for bankruptcy protection.
Foreclosure proceedings will vary somewhat by jurisdiction, but the basic concept remains the same. When a borrower defaults on its monthly payments, the lender can immediately demand the full loan amount due and payable. The lender can then ask the court to garnish the property, which returns legal title to the home to the lender.
One of the many foreclosure alternatives is to attempt to refinance your loan. Many lenders will actually work with the borrower to find a way to refinance the home. In some cases, they will add the late payments to the end of the loan or call off the loan. If the lender will not work the debtor, a debtor may be able to find another lender who will refinance the entire loan thus avoiding foreclosure.
Since the practical reality of a foreclosure proceeding is that the entire loan balance becomes due, another of the foreclosure alternatives is to sell the property. If the current market value of the home is less than the mortgage owed, the debtor may be able to obtain permission from the lender to sell the property in a short sale. In a short sale, the property is sold for the current market value of the property and the lender agrees to forgive any remaining shortfall on the loan.
A foreclosure substitute deed is one of the less popular foreclosure alternatives; however, it has advantages over a foreclosure. A substitute foreclosure deed simply signs the property back to the lender without the need for a formal foreclosure suit. The advantage for the debtor is that any additional debt contracted in a foreclosure proceeding is avoided. The public nature of a foreclosure is also avoided with the execution of a substitute deed for the foreclosure.
For debtors who believe their current financial situation could improve, filing for bankruptcy protection is one of the best foreclosure alternatives. An automatic stay is granted upon filing a bankruptcy petition, which prevents all creditors from continuing or starting any collection efforts. During bankruptcy, the debtor may be able to make arrangements to recover payments and avoid foreclosure altogether.
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