Although there is a lot of talk about the economic crisis and the recession being over, many people still face significant debt and financial trouble. If you are unable to make your mortgage payments, you may worry that the bank will foreclose on your home.
It is critical that you understand the risk of foreclosure and ways you may be able to avoid it. The following information can help you assess your risk and determine your next steps if you fear that a home foreclosure may be in your future.
How does foreclosure work?
The process of foreclosure results when a homeowner fails to make payments on a home mortgage. The lender holding the mortgage can begin the process of foreclosing on the home; that is, taking it back from the homeowner in an attempt to recoup the debt. The bank may decide to try to sell the home in a "short sale." If the home is not sold in a short sale (a sale in which the proceeds from the sale are less than the total outstanding debt on the home), it may go to auction.
How can I avoid foreclosure?
If you are unable to make mortgage payments on your home, you may fear you have no solution other than losing your home. However, this is not the case. There are alternatives and options available to you that can allow you to keep your home, despite the fact that you are in deep debt and unable to make your mortgage payments.
One such option is a loan modification. This can be one of the first steps to take if you are unable to make your mortgage payments. In a loan modification, you negotiate new terms of your mortgage with the lender. However, sometimes these negotiations fail and sometimes there are unscrupulous loan modification companies who take advantage of clients, whose homes go into foreclosure despite the modification.
Another option available is bankruptcy. Although many people fear that bankruptcy forever damages a person's credit, the truth is that it is sometimes the best solution to get a fresh financial start. Depending on the specifics of your situation, you may be able to hold off a home foreclosure by filing for bankruptcy. Learn more about the two types of bankruptcy, Chapter 7 and Chapter 13, to understand whether one of them is right for you.