If you still owe money on your mortgage loan but are unable to pay it, the lender has the right to foreclosure on your mortgage and take possession of the property. In addition to potentially leaving you homeless, this can have a devastating effect on your credit.
Nevertheless, foreclosing on your property can be expensive, and your lender may be reluctant to do it. Therefore, it may be possible for you and your lender to come to an alternative agreement. Experian describes some possible alternatives to foreclosure.
1. Chapter 13 bankruptcy
If you qualify for Chapter 13 bankruptcy, it reorganizes your debts, including back mortgage payments, so that you can pay them off over time. Filing for bankruptcy also puts a temporary hold on any foreclosure proceedings.
To qualify for Chapter 13, you have to meet income requirements. To avoid foreclosure, you have to continue making your current mortgage payments while paying back your old debts. Once you file, the court appoints a bankruptcy trustee who helps you with your repayment plan.
2. Deed in lieu of foreclosure
A deed in lieu of foreclosure is an agreement by which you turn over ownership of your property to the mortgage lender. While you still lose your house with this option, the lender may waive the deficiency, meaning that you would not have to pay back the difference between the value of your home and what you still owe on it. The damage to your credit may also be less than what you would have with foreclosure.
3. Mortgage modification
To avoid foreclosure, your lender may be willing to negotiate a change to your existing mortgage to make it easier to pay back what you owe.
Try to act quickly when facing foreclosure. These options may not be available to you if you wait too long.