Refinance Your Home Debt or Foreclosure

By: Sarah Carlye

If the home was financed at one of the high interest rates that prevailed during the early 1980s, refinancing at a lower interest rate and/or with a longer payment period can greatly reduce monthly payments and bring them within reach. Moreover, refinancing a low interest first mortgage and high interest second mortgage into a low interest first mortgage can also reduce payments. Advocates should keep in mind, however, that many refinancing schemes are frauds. Even legitimate refinancing options that look like an improvement on closer inspection are far more costly than the existing mortgage. The major disadvantages to refinancing residential debts are the increased finance charges that result from extending the repayment period, the possibility of having to pay points, the additional closing costs, and prepayment penalties on the old mortgages. The feasibility of refinancing depends on whether the homeowner can obtain a loan at a reasonable rate, usually from a savings bank, a commercial bank, a credit union, or a legitimate mortgage company. Most finance companies and certain mortgage companies do not make residential loans at reasonable rates and terms.

When foreclosure is threatened, a homeowner may wish to contact a local realtor to obtain an appraisal of the home or even list the home for sale. Doing so provides the owner with information about the home`s marketability and its likely sale price, without necessarily obligating the owner to sell. Most homeowners do not want to give up their home, and but sometimes no other solution exists. Selling the house may be painful, but it is always a better solution than letting a bank sell the house. If they find a buyer, homeowners may sell their homes privately before a foreclosure sale takes place.

Consider Filing Bankruptcy

Homeowners who are about to lose their homes should carefully consider filing a petition in bankruptcy. This can stop the foreclosure process and allow them time to regroup and try to work out a plan to keep the home. Bankruptcy may also help them cure past defaults and make future payments. However, the bankruptcy option is complicated and it is a good idea to seek professional assistance from an attorney specializing in bankruptcy.

Deed in Lieu of Foreclosure

Homeowners often will be tempted to turn over their deed to the creditor instead of fighting the foreclosure. This is generally a good idea only if the borrower will receive something from the creditor in return for saving it the trouble of foreclosing. For example, if the home`s value exceeds the amount of the indebtedness, the homeowner may want to ask the creditor to agree not to seek further collection remedies. By turning over the deed to the mortgage holder, the consumer may forfeit any right to equity in the home. Similarly, the consumer may have valid claims or defenses against the creditor that would be lost by turning over the deed. If the consumer does offer the creditor a deed in lieu of foreclosure, make sure that there is a written agreement giving them sufficient time to vacate the premises in order to find alternative housing and move in an orderly fashion.

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