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When foreclosure looms

Poor finances or just bad luck can put heavy financial stress on mortgage-paying homeowners. If foreclosure looms, several options are available. The foreclosure process in New Jersey, as in other states, is a relatively lengthy and complex procedure that all parties want to avoid. It's important, above all, to keep lines of communication open and to cooperate with the lender on any late-payment issues.

Lenders prefer to work out mortgage issues, rather than foreclose. A mortgage workout can include a loan modification, in which the lender agrees to lower the interest rate or extend the term of the loan. This means a lower, more manageable monthly payment. If a single payment is missed, the lender may allow the homeowner to pay the missed amount in regular installments while keeping the original loan terms.

Loans secured with a down payment of less than 20 percent carry private mortgage insurance. In some cases, a PMI carrier extends a temporary loan of cash to keep the mortgage current. In addition, a VA-backed loan that is running into trouble is a candidate for refunding by the VA itself. This can ease the loan terms and monthly payments. Re-amortization is the process of rolling a missed payment into the balance of the loan, which then carries a higher balance and slightly higher monthly payments.

If there's no possibility of a workout, the borrower has other options to escape foreclosure. A deed in lieu is a process of transferring ownership of the property to the lender, in order to avoid foreclosure. In a short sale, for which the lender must give permission, the homeowner offers the home at a market price less than the mortgage balance. Finally, foreclosure can be temporarily halted by a bankruptcy filing.

Source: Realty Trac, "Stopping a home foreclosure", December 26, 2014

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