The fear of losing our homes is one we can all relate to. Bills and everyday expenses add up, and while anyone can budget and prepare, the reality is that we can’t prepare for everything. We are all prone to losing our jobs, facing a medical emergency, struggling with outstanding debt, and any number of factors that can topple our financial security. The pressure adds up, and one debt leads to another and suddenly we need to figure out how to avoid foreclosure.
Foreclosure can be truly damaging. In addition to losing your home, failing to pay your mortgage can be a crushing blow to your credit score, which will make new financing and loans much harder to get.
Many factors can lead to a threat of foreclosure. Fortunately, debt and bankruptcy systems understand that the only way to ensure that a debtor never pays back is by taking away their home. Thus, there are many ways to avoid foreclosure. This article will explore a few ways for homeowners to avoid foreclosure. Though we can’t promise to fix all your issues, this article aims to support you in planning ahead and protecting your most important asset.
Heed the Calls
As with any debt, a mortgage is a relationship in which both parties have a vested interest in everything going well. Long before a foreclosure takes place, your lender will likely call to indicate that the debt is due. These first calls are your greatest opportunity to address the problem early. Explore possible solutions with your lender, and remember that the longer you wait, the harder it will be to get back on track with payments.
In certain cases, you may communicate your complications to your lender and work on an extension. Alternatively, you may want to provide sufficient documentation and arrange for a loan modification. Some lenders may be open to changing the loan terms, interest rates, and deal structure. Though rarer, some lenders may be open to temporary forbearance, where a part of your balance is set aside to be paid in the future.
You may also consider refinancing, but there are a few factors to consider, as refinancing may not be right for your case. For one, closing and refinancing costs may be higher than you can afford. There are fees associated with refinancing, including appraisal, attorney, application, and insurance fees, all of which are necessary for the process. You may also lose equity in your home if you use a cash-out refinance. Naturally, we suggest discussing the options with your lender clearly before committing to a refinance.
Deed in Lieu
You may be eligible for a process where you give the house’s deed to the lender in lieu of foreclosure. This will still impact your credit but will be a lesser blow than the alternative. This kind of agreement is not for everyone, and it may work better the less equity you have in the property. It will also mean eventual relocation because, though the owner may rent it back for you, they can also sell the property to a new owner.
Sale-Leaseback
A practice that has grown in popularity in the past few years is the sale-leaseback. In this arrangement, you sell the property to someone else, and they rent it back to you. It allows you to stay in your home longer as long as you continue to pay rent to the buyer. In addition to its many advantages, it’s a highly realistic solution for people facing foreclosure, especially those also facing bankruptcy.
On one side, investors can see this purchase as a lower-risk, long-lasting investment. You can reach a rent agreement that better fits your economic capacity and situation than the mortgage, which ensures your new lender that you will pay on time for longer. The buyer will have to pay all associated costs to the property, but once they’re paid, the rest of the rent you’ll pay will go straight to them. As with any agreement, a sale-leaseback requires a strong argument to your case.
To your benefit, this kind of agreement allows you to occupy the property as long as you pay the rent. It also secures a quick influx of cash resulting from the property sale. In this way, you can recoup your investment because this kind of deal is valued at more fair rates that better reflect your home’s value. For people facing bankruptcy, this allows you to manage your resources and, potentially, reduce your other debts and avoid foreclosure. Even if bankruptcy is not on the line, a sale-leaseback is an excellent way to protect your credit score.
Flexibility is another benefit of these kinds of agreements for both the seller and the buyer. Depending on your intentions and needs, your leaseback arrangement may be short or long-term. This allows you to plan anew and gives you an opportunity to relocate on your terms. Alternatively, you can stay in the house as long as you want, provided that the seller agrees. Eventually, it will become a full passive income for them, and because it comes with so many tax benefits, you’re more likely to strike a better deal for both you and your new landlord.
The threat of foreclosure is a very demanding call to action that requires immediate action—though, ideally, preventive action. Navigating the relationship between you and your mortgage lender can be the ideal solution to your economic situation, and you may be able to reach a new deal that can help you stay afloat. Still, with time being such a limited constraint, solutions can dwindle away before you have a chance to take them. Sale-leaseback agreements can quickly turn the tide, help avoid foreclosure and allow you to gain a strong influx of cash and keep your home so you’re free to focus on what you need in trying times.
Sell2Rent can be a dedicated partner that can guide you and a potential buyer in securing an arrangement that best reflects your property value. Click here to learn more about the sale-leaseback process and how we can help you avoid foreclosure.
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