If you can no longer pay your mortgage, there are few options that you can explore to either refinance or modify your current loan. There also other options that you can pursue to avoid foreclosure such as a short sale, deed in lieu of foreclosure or simply walk away from your home.

Below you will find a short explanation of these options.

Apply for a Loan Modification

However, the first thing any mortgage professional would suggest is to apply for a loan modification. In today’s economy a loan modification is the number one way for any homeowner to prevent foreclosure and stay in their beloved home. A loan modification may allow the borrower to put any past dues to the back of the loan to avoid a large lump sum payment, change the terms of the mortgage from an adjustable to a fixed rate loan, lower the current interest rate, and sometimes the lender will even allow the mortgage to be amortized over a forty-year period to keep the payments extra low.

In order to achieve a modification you must be able to prove to your lender that you can afford your home just not the terms you were provided. Many people come to believe that lenders may offer a modification based on the fact that that they now owe more on their mortgage than the property is worth. This is false, you must be able to prove a hardship that has made your payments unmanageable. Common hardships that lender may accept are divorce, job loss, income reduction, death in family, high bills, and the oh so common adjustable rate mortgage that has adjusted to an unaffordable amount.

For those of you out there that have a hardship that has caused your home to be no longer affordable even with a lower payment you must seek another route.

Apply for a Short Sale

Other than a loan modification a short sale is also a good way for a homeowner to prevent the extreme consequences of foreclosure. The reason whys many people have to seek a short sale instead of a regular sale is due to the fact that home values have dropped a significant amount the past few years and most people now owe more on their mortgage than their property is worth. Because of this fact it will be nearly impossible for the majority of homeowners to sell their home and satisfy the existing loan.

If you are able to sale your home for less than what is owed it is important to be aware of the consequences that come along with this event. Since you are not satisfying the outstanding balance of the mortgage the lender will generally issue a 1099 for the difference owed. This is referred to as the deficiency balance and you may be required to pay taxes on that amount. Also if you have fallen behind on your payments prior to the sale going through you may find your credit score has dropped a significant amount, sometimes 100-200 points. But for individuals that are fortunate enough to achieve this without missing a payment than you score should only be affected a very small amount, maybe 20-50 points.

Apply for a Deed in Lieu of Foreclosure

A deed in lieu of foreclosure (DIL) is a legal procedure in which a homeowner willingly transfers the title of his property to the lender and in return the latter agrees to release the borrower from all obligations in the mortgage loan. This is advantageous for the borrower because it has a less detrimental effect on his credit score and he is assured that the lender will not come after him for any outstanding amount in the loan after the lender has sold the property. On the other hand, the DIL is also beneficial for the lender because it avoids the costs and effort required for a foreclosure sale.

For homeowners (mortgagor) facing foreclosure, a deed in lieu of foreclosure provides an alternative solution to the standard default process. In particular, the deed grants the lender, the “mortgagee”, full rights to the property title to satisfy the conditions of the loan. Such agreements are a common form of mortgage contract settlements. In general, a deed is a right granted by a legal contract based upon mutual agreement; therefore, a deed-in-lieu must be based upon voluntary agreement in good faith.

Get Free Mortgage Help in Our LoanSafe Mortgage Forum

For individuals looking to obtain more information on ways to prevent foreclosure we strongly advise you to join our free forum here on LoanSafe.org. We are a community of now more than 28,000 homeowners and mortgage professionals alike. You will find all the information here you could possibly need in regards to home loans and different ways to benefit your financial standings.

Get Free Mortgage Assistance from the Government

There are also many non-profits that offer free mortgage assistance programs across the nation. Here are some links and numbers that may help you:

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.