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Options to Avoid Foreclosure

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By : Karim El Sheikh    99 or more times read
No one starts out buying a home with the thought of losing it in the future to foreclosure.

However, you should make sure you can afford the home that you buy. Using credit wisely is the best way to avoid foreclosure. However, there are unforeseen circumstances that may arise such as losing your job, illness, disability or a divorce that may put you at risk of losing your home if you cannot afford to make your mortgage payments.

If you are facing a current financial hardship and are in default or about to default on your mortgage, you can avoid foreclosure by talking to your lender immediately and explaining your financial situation.

There are several options that may be available to you including, but not limited to:

Reinstatement of Your Loan

Reinstatement is where you pay any arrearages, including fees and costs. This allows you to bring your mortgage current.


You must have equity to refinance. The new loan will payoff your current loan balance. Usually refinancing is done when you have a variable rate mortgage and you refinance to a fixed-rate mortgage, which reduces your monthly mortgage payment.

Loan Modification

A loan modification is when your lender agrees to modify your current loan because you are upside on the mortgage. This means your home is now worth less than you owe your lender. Typically, the lender lowers the interest rate and extends the loan term. Some lenders may also reduce the principal.

Short Sale

Short sales have become a popular alternative for a borrower who cannot afford to keep his or her home and is upside down on a mortgage. If you decide to sell with a short sale, the lender must approve the sale because they will have to write off the difference between the short sale proceeds and what you owe on the loan. You should negotiate that the short sale proceeds satisfy your mortgage debt so the lender cannot come after you later for a deficiency judgment. Short sales take a few months or more to get approved and there is no guarantee that the lender will accept the offer. Make sure your buyer understands the short sale process and is committed to waiting for a response from your lender.

Deed in Lieu of Foreclosure

A deed in lieu of foreclosure is when you transfer ownership of the home back to the lender and walk away owing nothing. Not every lender will accept a deed in lieu so you need to ask your lender if this is an option.

Selling Your Home

If you have equity, then you can sell your home and payoff the loan balance and either rent or purchase a less expensive home.


Bankruptcy is serious so you should make sure you have exhausted all other options before considering filing for bankruptcy. Bankruptcy temporarily stops foreclosure until the bankruptcy is discharged. Talk to a bankruptcy attorney to determine which Chapter you should file under. Chapter 7 is a complete liquidation of your assets, excluding statutory exempt assets. Chapter 13 is a reorganization, which means you can keep all your assets because you enter into a payment plan that reduces your debts with your creditors, which must be approved by the bankruptcy court.

If you are facing foreclosure, you should speak with a foreclosure defense attorney who can help you determine which options are the best for your financial situation and help you save your home from foreclosure. You may also want to speak with a credit counselor to help you follow a budget and learn how to use credit wisely. is your resource for buying hud homes for sale. Search all available HUD properties in your area.

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