A home purchased with a mortgage is the collateral property for the loan. Until the homeowner pays the entirety of the loan back to the lender, they are at risk of foreclosure. People who miss four or more mortgage payments could face foreclosure proceedings in civil court. Their lenders can seek to claim the home where they live to recoup the principal balance and unpaid interest still owed on the mortgage.
There are many different types of foreclosure defense available. Sometimes, homeowners file for personal bankruptcy. Other times, they might work with a lawyer to defend against foreclosure on the basis of technical errors made by the lender. People can also work with an attorney to negotiate a mortgage modification with the lender to prevent foreclosure.
There are numerous types of modifications available, and any of the three described below could help homeowners reduce the likelihood of foreclosure.
1. Extending the repayment period
Perhaps an ambitious home buyer took on a 15-year mortgage. However, if their income changes, the higher monthly house payments could become unsustainable. Those who missed multiple mortgage payments may have the income to pay what they owe now but not to cover all of the missed payments immediately. A mortgage modification extending the repayment period can decrease monthly payments or move missed payments to the end of the repayment cycle.
2. Locking in a lower rate
Minor changes in interest rates can have a major impact on monthly payment amounts. People struggling because they bought or refinanced at a time when interest rates were higher may want to work with their lender to lock in a lower rate. That new rate could reduce their monthly payment, making it easier for them to keep the mortgage in good standing. They may also be able to commit more toward their payments each month, thereby reducing the principal balance more rapidly than when they only make minimum monthly payments.
3. Changing the type of mortgage
Fixed-rate mortgages are the gold standard, but people can still take on adjustable-rate mortgages. They might find the lower initial rates tempting and may convince themselves that the economy or their income should improve by the time that promotional rates expire. Buyers might take on a mortgage with a balloon payment, which may leave them scrambling to refinance. It is sometimes possible to convert existing mortgages to a different type of mortgage as a means of keeping the buyer in the home and preventing foreclosure.
Reviewing financial circumstances and mortgage payment history with a skilled legal team can help people explore their options. An attorney can assist with various types of foreclosure defense, including negotiating with a lender to secure a mortgage modification.
