Foreclosure is widespread in the country as people are finding it difficult with the current recessionary economy. Much more than that, many people aren’t even aware that a foreclosure can actually be stopped as there are plenty of options that are available.
Lenders are willing to give alternatives
Homeowners that are unable to make the mortgage payments may be doing it due to the fact that they are facing financial hardships. Financial hardships can be due to unemployment, death, divorce or even long-standing illness. All of these situations can make it difficult for person to make the mortgage payments.
In case the homeowner is facing any of these problems, then they can approach the lender for seeking out various solutions. First and foremost, the lender will put the loan in forbearance or go for a loan modification or even refinancing of the loan. In such cases, the rate of interest can be lowered, payments can be stopped for a period of time or the principal can also be reduced.
In effect the homeowner needs to make lower payments on their mortgage loans. This can actually mean that the homeowner is saving money and is still being able to retain the house. In this way, they are able to have equity in the house and also improving their credit report.
Protecting the credit report
In case of a foreclosure, the credit rating for the individual is a big jolt. The rating can be downgraded by as much as 250 points. Not only does the person lose their home, they are completely homeless. Conventional lenders aren’t willing to extend individuals that have a low credit rating any mortgage loan. The only option is to go to subprime lenders that will charge 3 – 4 % higher interest rate than the prevailing interest rate for the risk that they are taking.
Foreclosure stays for a period of 7 years on the credit report and can make it difficult for people to get future loans at reasonable interest rates. In some case, employers also look at the credit report before offering a job to the applicant. Therefore it’s very crucial that foreclosure should be avoided.
Losing home and equity
For those that are foreclosed, they are pushed out of their homes, and have to find rental accommodation or housing in other neighborhoods. This can be damaging to the family. Also in cases, where the individual is unemployed, this can be quite a difficult situation as well.
Also the family would have lost out on all the equity that they have built-in the house. The mortgage payments that were paid before they were foreclosed increased the equity of homeowner.
Being sued for deficiency judgments and taxed by IRS
The difference between the proceeds from the foreclosure sale and the mortgage loan outstanding is treated as an income for the individual and the IRS will tax them to that extent. Lenders can also bring about deficiency judgments against the borrowers. These can further hurt the economic status of the borrower.
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