Alternatives to foreclosure on your house

5 Possible Alternatives to Foreclosure on Your House

Being delinquent on your mortgage is a scary time. You’re faced with potentially losing your home at a time when stability is what you need. In 2008, U.S. mortgage foreclosures spiked as a result of overextended lending and poor credit standards. Currently, millions of Americans are struggling to make their mortgage payments due to the impacts of COVID-19.

Alternatives to Foreclosure

If you’re behind on your mortgage payments and facing foreclosure, there are several potential options to avoid foreclosure and protect your future:

  1. Sell the property.

If you are behind on mortgage payments and owe less on the home than it is worth, you can sell the home, repay the loan in full, and keep the difference to help rebalance your finances. We have been experiencing a very strong real estate market over the past year, so there is a good chance that the value of your home has increased significantly during this time. To get a better idea of what your home is worth, you can check out websites such as Zillow. To obtain a more accurate home valuation, speak with a realtor in your local area.

  1. Rent the property.

In a situation where the rental income would cover the mortgage repayment and you have an alternative place to live, you can avoid foreclosure by continuing to pay the mortgage via the rental income. Similarly, you can rent out a room or area of your home or property to help supplement your income while remaining in the home to help pay the mortgage payment.

In most areas, the average rent for a home has risen alongside the spike in home values. If you are intent on keeping your house, you might very well be able to rent it for enough to cover your mortgage. If you are considering renting part of your house to help supplement the mortgage, one way to do this is to do short-term rentals through Airbnb or a similar online platform. If you decide to go this route, you would be catering to travelers and those who may need a temporary place to stay for a few weeks up to a few months.

  1. Negotiating a workout agreement with your lender.

In most situations, the lender does not want to foreclose. The costs of foreclosure are high. Many lenders are likely to find themselves in a situation where they are losing money by attempting to foreclose and sell. Rather than foreclose, many banks are happy to consider workout agreements. A workout agreement is a mutual agreement between the debtor and lender establishing new covenants and repayment terms. For many individuals who are behind on their mortgage payments, a simple call to your lender or mortgage servicer can provide the relief that you need.

  1. Short sale.

If you owe more on the home than it’s worth, the lender may agree to a short sale. A short sale is a sale of the property for less than the value of the mortgage. While the bank loses money on the difference in the sale price and outstanding mortgage, it may still agree as this could be less costly to them than foreclosing. In doing so, this can free you from any ongoing obligations.

If you do decide to act for a short sale, be aware that this could trigger tax consequences. If the lender loses money on the transaction and decides to forgive the outstanding amount you owe, they will usually report this amount as canceled debt to the IRS. This means that you might have to reported as additional income on your federal and possibly state income tax return. Consult a tax professional to determine how a short sale might affect your specific tax situation.

  1. Deed in lieu of foreclosure.

As noted above, foreclosure can be a costly endeavor for a lender. Rather than spend the money on the legal fees of a foreclosure, the lender may be willing to accept a deed in lieu of foreclosure. A deed in lieu of foreclosure transfers the property from the debtor to the lender to satisfy the outstanding debt. The process can reduce the stress of foreclosure on both parties and will result in the lender discharging any outstanding debt secured by the property.

Bankruptcy and Foreclosure Attorney in Mobile, Alabama

At Padgett & Robertson, we help families in the Mobile area navigate through financial distress. In these unprecedented times, we are working harder than ever to protect families from the stress caused by financial difficulty. In our experience, foreclosures have lasting psychological and financial consequences and homeowners should do all that they can to avoid this damage. If you are concerned about foreclosure or have questions, please contact us today to schedule a free consultation.

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