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How To Avoid Real Estate Foreclosure

May 13, 2008
Real estate foreclosure is the legal process by which the lender can repossess or take over the property which he had lent, on the grounds of failure to pay dues. When such an action is taken by a lender, one would have to vacate the property and or pay dues to the lender for the same.

What leads to foreclosures?

Ignorance is what leads to the process of real estate foreclosures generally. One cannot afford to ignore the letters from the lender. Due care must be taken to keep the lender informed about your situation if you are unable to pay the rent. Generally, the lender would require you to produce certain financial documents as well such as monthly income and expenses so that they can verify your status and give you sufficient time to repay them. However, failure to do all these could lead to real estate foreclosure.

What steps can one take to best avoid foreclosures?

The following steps can be taken by most individuals in order to avoid foreclosure of property:

Avoiding ignorance and communicating with the lender is a must. This is the primary step and one that cannot be over emphasized. A person should always be in good communication with the owner of the land and should not ignore any communication there off.

Special Forbearance: Once you communicate with the lender, he may be able to devise a special repayment plan depending on your financial situation. Such a plan could provide a temporary reduction or suspension of the payment and could provide you with vital time to obtain the money. Lenders generally provide this provision if there is a sudden increase in expenses or a sharp decrease in income.

Modification of Mortgage: This involves the refinance of the debt, which may or may not be accompanied by the extension of the term for the mortgage. This could help you recover by reducing the payments which are made monthly to a more affordable level. This is a step, which one should take generally once they have recovered from the financial crisis and can afford the newer payment terms.

Partial Claim: In certain situations, it is possible for your lender to file for a partial claim under which the US Department of Housing and Urban Development would pay the lender the amount required to bring the mortgage to current. This is done when you execute a promissory note. A lien will then be placed on your property until the promissory note is paid in full. The advantage is that the promissory note is free of interest and is generally due when you pay off the first mortgage or sell the property- giving you sufficient time for recovery.

Pre-foreclosure sale: In certain situations, it is possible for you to sell off your property for an amount, which is less than the amount required for payment of the mortgage loan. This would give you the money to pay off a part of the mortgage loan.

As a last resort you could use a "Deed-in-lieu of foreclosure" by which you give back the property in order to avoid real estate foreclosure and therefore save your credit rating.

Real estate foreclosure can be quite hurtful; however knowing the above methods to avoid them can save you the grief of getting kicked out of your home.
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