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How to find foreclosure alternatives: 6 solutions

Foreclosure alternatives

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This guide outlines 6 alternatives to foreclosure that could save your home.

Despite the recent real estate market bubble, the continuous increase in foreclosure rates is baffling. While most foreclosures result directly from predatory lending by banks and financial institutions, most homeowners find themselves in this situation due to the stagnating economy and the resulting financial hardships.

Foreclosure alternatives

Fortunately, homeowners with tough financial situations and looming foreclosures can consider the following options to save their homes.

1.    Forbearance

If you anticipate that your financial tribulations will resolve in the near future, you can negotiate a forbearance agreement with your mortgage lender. The California foreclosure moratorium is a great example of forbearance agreements. With this agreement, lenders permit homeowners to make no or reduced mortgage payments for a given period. Most forbearance agreements are typically given for a period ranging between three to six months.

However, the period depends on specific lender guidelines and your prevailing financial situation. Once the Forbearance period lapses, you should resume paying the initial monthly amount plus an additional amount to cover the missed months.

You can alternatively pay the missed amount as a one-time payment. The lender may also formulate a repayment plan or agree to defer the missed payments until the initial due date of the loan.

2.    Leverage Government Foreclosure Prevention Programs

Mortgaged homeowners can avoid foreclosure by taking advantage of the following government foreclosure prevention programs:

Fannie Mae or Freddie Mac

Commonly known as Government Sponsored Enterprises, Fannie Mae and Freddie Mac are privately owned entities that significantly influence the mortgage market. These entities own and guarantee several mortgage properties across the U.S and receive support from the federal government.

If you took a Fannie Mae or Freddie Mac loan and can’t service the mortgage payments, you can explore various options to avoid foreclosure. You can qualify for either of the following;

  • A repayment plan that considers your financial hardship
  • A loan modification that reduces monthly payments
  • A modification that adds missed payments to the outstanding loan balance
  • Plan to pay the missed payments through the COVID-19 payment deferral program.
Intervention for FHA Loans

The Federal Housing Agency also offers foreclosure protection to property owners with FHA-insured loans facing foreclosure. As per the Department of Housing and Development (HUD), loan servicers should review borrowers with FHA-insured loans and behind or about to fall behind mortgage payments and consider them for alternatives to loss mitigation.

Loan servicers should allow homeowners to explore alternatives, such as loan modification, pre-foreclosure sale, partial claim, repayment plan, deed in lieu of foreclosure, or forbearance.

●      Help for Homeowners After Natural Disasters

Homeowners can also qualify for foreclosure protection if they suffer the effects of natural disasters, such as wildfires or hurricanes. However, this depends on the lender or guarantor of your mortgage. Ideally, homeowners can qualify for a moratorium if they are FHA-insured or Fannie Mae, Freddie Mac, or VA guaranteed their loan.

If your loan isn’t under the above borrowers, you can apply for financial relief from the Federal Emergency Management Agency. Loan servers can also offer relief options, such as loan modifications or forbearances to affected homeowners.

3.    Loan modification

A mortgage loan modification is probably the most common alternative to foreclosure. It is a perfect and permanent solution for homeowners who can’t keep up with the set monthly payments. Typically, loan modification involves extending the repayment period, reducing the interest rates, and monthly payments.

Like other alternatives, you should apply with your lender for approval. Most loan modification plans are proprietary, as the lender offers them directly. Some homeowners may qualify for special loan modifications.

4.    Short Sales and Deeds in Lieu of Foreclosure

A short sale offers another alternative to foreclosure to homeowners who can’t service their mortgage loans. Short sales significantly reduce the impact on credit rating and avoid deficiency judgment when the property is sold. With short sales, homeowners can avoid foreclosure by selling their property for a price less than the outstanding loan balance.

However, your lender should consent to a short sale. The lender should also agree that they won’t pursue homeowners for the deficiency, which is the difference between the selling price and loan amount owed. Unfortunately, the main problem with short sales is finding potential buyers who can buy the property at a price set by the lender.

Giving lenders a deed in lieu of foreclosure is another similar technique that homeowners can use to avoid foreclosure. In this case, instead of a foreclosure, homeowners transfer property ownership to the lender. Lenders may be against deeds in lieu of foreclosure unattractive compared to short sales as they have to shoulder the burden of finding a buyer.

5.    Reverse Mortgage

Though less common, homeowners can avoid the experience of foreclosure by taking a reverse mortgage to service the existing mortgage. A reverse mortgage can only be accessed by homeowners aged 62 and above who have significant equity in their properties. A reverse mortgage provides such homeowners with monthly payments, an option for credit, or both.

Reverse mortgage loans only become due when the property owner dies, moves out, breaches obligations under mortgage terms, or sells the property. Unfortunately, reverse mortgaged properties are still subject to foreclosure, and homeowners can lose a significant amount of equity in their properties. This option has serious drawbacks and should be taken as a last resort.

6.    Mortgage Assumptions

You can also get out of mortgage pressure if you can comfortably leave your property by transferring it to another person who can assume the mortgage. With this option, the new person takes over your obligations of paying for the mortgage. While the lender automatically pursues the new owner, they can also come after you if the new owner fails to complete the deficient amounts.

Note that mortgage assumption can be prevented or restricted by an existing due-on-sale clause included in the mortgage. Unfortunately, federal and state regulations can limit the application of these clauses.


Mortgage loans are among the common property financing options. If you used this option and are still experiencing financial hardships, you can qualify for a loan modification, repayment agreement, or forbearance if you want to keep your property. A reverse mortgage, filing for bankruptcy, and mortgage assumptions are other alternatives to foreclosures. If the government backs your mortgage, you can also qualify for special workout options.