For many homeowners in Indiana and around the country, making hard choices is a daily struggle. When it comes to deciding between paying the mortgage or putting food on the table, however, providing for the family’s immediate needs is the priority. But over time, mounting debt can make anyone want to just throw in the towel and let the home go into foreclosure.
Fortunately, there are options for avoiding this scenario and being able to manage debt while keeping the family home. For Indianapolis residents who have tough financial decisions to make, it makes sense to get a legal perspective on their situation so that they can discover the best avenue for getting back on track.
When does it make sense to let the home go into foreclosure?
In a strategic default, homeowners who realize that they are owing more on their mortgage than what the home is worth will often decide to just walk away from the financial obligation. Also called an underwater loan, in this situation the principal balance is higher than the market value of the home, so the homeowner has negative equity in the home.
There are high risks to borrowers who make this choice, however. Not only will the foreclosure remain on their credit score for years later, making it much more difficult to obtain a future loan, in Indiana the lender can go after the borrower in a deficiency judgement if the foreclosure sale is less than the debt owed.
There are a couple of other options that homeowners can try to free themselves of the mortgage:
- In a short sale, the mortgagee asks the lender to approve the sale of the home for less than its market value.
- In a deed-in-lieu, the borrower signs the deed over to the lender instead of foreclosing.
However, in either instance, the borrower may face a deficiency judgement later on.
What options are there for keeping the home?
Even if the homeowner is unable to make mortgage payments, it is still possible to hold onto the home. As foreclosures are costly to the lender, they are usually open to a discussion of alternative solutions, such as:
- Requesting a principal reduction from the lender. Although not an ideal solution for the banks, it is preferable to foreclosure.
- Working out a loan modification where there is financial hardship, which may entail a lower monthly payment over an extended period.
- Refinance the home, which is a sensible option if the home has equity.
Chapter 7 and 13 bankruptcies are also options, although there are conditions that must be met to determine which bankruptcy is best suited to your situation