Foreclosures occur when a property is repossessed due to the homeowner's failure to pay off its mortgage. They arise out of a number of reasons -- typically, it's because the homeowner has lost his job, incurred debt, fallen ill, suffered divorce or separation, or lived beyond his means.
The process of foreclosure begins with a "Notice of Default" to the homeowner. This notice informs the homeowner of the outstanding debt and allows for a grace period, known as "pre-foreclosure," to pay off the remaining dues.
There are some ways to avoid a pending foreclosure, and this means discussing and reevaluating your options with your lender.
1. You may change the terms of your loan if your mortgage is an adjustable loan. Ask your lender whether they're open to renegotiating a lesser rate that you can manage. You may also request for an extension of the amortization period.
2. You may opt for a repayment plant. Ask your lender if they can give you time to catch up on your missed payments by way of an installment scheme. You can, for example, pay an additional sum on top of your standard monthly payment. Your lender may allow you to keep paying your missed payments under this installment scheme until you're fully caught up.
3. You can refinance your home. A refinance loan is a new loan that you can use to pay off your original loan.
4. You can sell your home and use the proceeds from the sale to pay off your debt.
5. You can put up your home as a short sale. Short sale properties are for-sale homes with incomplete mortgage payments. Even though the proceeds from selling the home will fall short of the mortgage due, some lenders agree to this option to cut back on losses. Opting for a short sale will also save you from having a foreclosure in your credit history.