Top 10 Bailouts For Homeowners In Foreclosure

Foreclosure is a scary thing.  All those years spent saving and being diligent with payments washed away as the bank takes over your mortgage…and your home.  The current housing market is steep deep with foreclosures.  But there are a few little known steps the average homeowner can take to "bailout" from impending foreclosure.

1. Mortgage Modification Programs:
A mortgage modification program is set up between the lender and the borrower.  The borrower may qualify to refinance their mortgage or even extend the life of the mortgage that will result in lower monthly payments.  Although mortgage modification is the easiest way to catch up on late payments and stop foreclosure, some banks and lenders do not offer this option.

2. Repayment Plans:
Similar to a mortgage modification program, banks and lenders can work with you to set up a fixed payment plan to catch you up on your late payments and postpone the foreclosure process.  Contact your lender's Loss Mitigation department to see if you qualify. 

3. Mortgage Forbearance Agreement:
A forbearance agreement is a written agreement reached between you and your bank or lender to postpone (forbear) repayment of your home loan for a minimum of 4 months.  There is no maximum number of months for a forbearance agreement; however, a borrower cannot exceed repayment for 12 consecutive months.  This is a good idea for first time homeowners hardest hit by recession, job loss, or other temporary loss of income.  Contact your lender's Loss Mitigation department to see if you qualify.

4. Government Programs:
The government is there to bailout the lenders, so why can't they be there to bailout the borrower too?  They can!  Although not well advertised, government programs offered by HUD (The U.S. Department of Housing and Urban Development), the FHA (Federal Housing Administration), or the VA (Veterans Administration) offer bailout programs to those who qualify.  In many instances, these government programs work with both the lender and borrower to set up a repayment plan, postpone foreclosure sales, or postpone repayment altogether.  Check with your local government to see if you qualify for these programs.

5. Foreclosure Loan:
Believe it or not, there are lenders out there that will loan you money to help get you out of foreclosure.  There are three types of loans to help get you out of foreclosure.  A Traditional Refinance is good for those who are only 90 days late in repayment, have a credit score over 550, and have good equity built up in their home.  A traditional refinance is sometimes all you need to avoid foreclosure.  A Hard Money Refinance is not easy to find (especially with a looming recession).  You need at least 35% equity in your home and must be able to afford the monthly payment (which tends to be higher than a traditional refinance).  A Private Money Refinance is similar to a hard money refinance, but it comes from a private entity rather than a bank.  Having at least 20% equity built up in your home is best.  Each of these loans carries a degree of risk and should be examined thoroughly before deciding on which loan is right for you.

6. Short Sale:
A short sale allows the homeowner to sell the property for less than the amount they owe on the loan.  This is particularly attractive today with looming recession fears and the decreasing value of the U.S. dollar.  The homeowner will not get full value of what the home is worth, but avoiding a costly and lengthily foreclosure process is possible.  Instead of having a foreclosure listed on your credit history, the loan will be shown as being fully paid off and closed but with an addendum of having been paid off for less than the total.  This bailout is best for homeowners with little or no equity, or who have not qualified for a mortgage modification, forbearance, or repayment plan with their lender.

7. Selling Your Home:
Planting a "For Sale" sign on the front lawn is drastic, but may slow down the foreclosing process with the bank or lender.  There is a risk with selling your house under the threat of foreclosure.  You may not get what the house is worth and still have to go through the costly foreclosure process.  The bank or lender might try to obtain control of the foreclosed property before you sell, cutting out the owner from any seller negotiations.  With the current hosing market in a slump, it can take up to 6 months to 1 year for a house to sell, forcing the owner to request more time to find a buyer.  Foreclosure does not stop simply because the home is on the market.  Be wary of scammers arriving at your door proclaiming "I pay cash for your home!"  They're predators and will leave you with little money left over after the sale. 

8. Deed-In-Lieu-Of Foreclosure:
Deed-in-lieu-of foreclosure essentially means you're voluntarily giving back your deed of ownership in lieu of going through the foreclosure process.  This act will cause the loss of your home, but protect your credit score and shield you from the long, costly foreclosure process.  This solution should only be used as a last resort.

9. Bankruptcy:
Declaring bankruptcy has a devastating affect on your credit, finances, reputation and future investments.  It should be avoided at all costs.  However, bankruptcy can be helpful in controlling the damage left by the foreclosure process.  It can postpone a forced sale, postpone foreclosure lawsuits and in some cases, postpone eviction.  Whenever dealing with bankruptcy, it's important to have an attorney who specializes in whatever bankruptcy you're filing.  Don't choose your bankruptcy attorney from a bus bench ad.

10. Friends & Family:
If all else fails, you can try to turn to friends or family for help.  Mixing family and money is never a good idea, but a small personal loan to get you back on your feet may save you from loosing thousands.  Whether you get a loan from your parents, cousins or friends, treat them as you would any professional institution.  Be diligent with repayment and don't over extend your self.

Remember, banks and lenders don't want to lose their money, and most will be willing to work with you to adjust, amend, or refinance your mortgage to keep you out of foreclosure.  Banks don't like to be in the real estate selling business.  The most important thing to remember during this time is to be active.  Taking no action at all is the worst thing you can do during a looming foreclosure.  Your diligence and progressive attitude towards your lender to fix the problem can go a long way.  See VideoJug's Real Estate section to learn additional valuable tips to picking the right mortgage, purchasing your first home and understanding loans.