You get a warning letter in the mail or, even worse, a representative from your bank calls to notify that you are behind on your mortgage payment and wants to know what you intend to do about it. You may be tempted to just ignore the letter or the phone call, but that could be a huge mistake!
Even if you are in dire financial circumstances, avoiding your mortgage lender won’t make the problem go away. The most important thing to remember is that time is of the essence when avoiding bank foreclosure. If you know that you are going to have (or you are currently having) problems paying your mortgage loan, contact your bank immediately and make sure you keep a paper trail.
Your best course of action is to try and work with the bank to determine which available option will best suit your particular circumstances. Foreclosures are not a welcome process for the bank, and they may be more accommodating if you can show that you’re making a proactive effort to avoid foreclosure.
There are several “work-out” options that a lending institution might suggest to help you avoid bank foreclosure. These include the following:
Repayment Plan
The bank may allow you to continue with your regular mortgage payments, plus a portion of the “past due” payments each month, until you are back-on-track with your loan. After that, you will resume making the regular monthly principal and interest payments.
Reinstatement
The bank may allow you to delay current mortgage payments if you pay the total overdue amount in a lump sum by a specific date. This option is often combined with forbearance (see below) to help homeowners avoid bank foreclosure.
Forbearance
The bank may allow you to reduce or suspend mortgage payments for a short period of time, after which another option must be agreed upon to bring your loan current. The forbearance option is often combined with a reinstatement for borrowers who will have enough money in the future (from a salary bonus, investment income, insurance settlement, income tax refund, or other type of cash sum) to bring their mortgage current by a specific date.
Mortgage Modification
If you are able to continue making payments on your mortgage loan, but you’re having difficulty catching up on late payments, you may be able to avoid bank foreclosure through a mortgage modification. The bank may agree to change one (or more) of the terms from your original loan to help you catch up, including the following:
- Missed payments may be added to the existing loan balance
- The interest rate may be lowered, or an adjustable-rate may be converted to a fixed rate
- The term of the loan may be extended by a number of years
Claim Advance
If you have purchased mortgage insurance, you may qualify for an interest-free loan from your mortgage guarantor, which can bring your account current and help you to avoid bank foreclosure.
The bank may require you to pay for certain expenses incurred by your “work-out” option ― such as processing fees, recording costs, appraisal fees, legal fees, and administrative expenses. But in times like these, when the real estate market is overflowing with foreclosed properties, it’s comforting to know that there are several ways you can avoid bank foreclosure.