When it comes to events that can have a negative impact on your credit situation, a foreclosure is near the top of the list. As a result, many homeowners faced with the possibility of foreclosure are interested in finding ways around the foreclosure. If you are concerned about avoiding foreclosure, here are some of the options you can attempt — if your lender agrees.

1. Mortgage Modification or Repayment Plan

If your potential foreclosure is due to a temporary setback in your finances, you might be able to avoid it if you can convince your lender that a mortgage modification or a new repayment plan makes sense for your situation.

Loan ModificationWith a mortgage modification, the lender agrees to adjust some of the terms of your mortgage, possibly dropping the interest rate, extending the term, or forgiving some portion of the principal. The idea is to change the mortgage, without you getting a new mortgage (or refinance), so that you can afford to keep making payments.

Other lenders might agree to a repayment plan. If you have fallen behind on your mortgage, but your temporary difficulty is over, you can talk with your lender about repaying the delinquency. This usually requires that you resume regular mortgage payments, and then make an extra payment each month until you are caught up.

No matter the plan, you will need lender cooperation, and you will need to prove that you can handle the mortgage payment going forward.

2. Short Sale

In some cases, if the lender doesn’t want to mess with a foreclosure, and is willing to allow you to sell the home for less than what you owe, you might be able to arrange a short sale. The lender forgives the difference between what you owe and what the home sells for. The result is that you get rid of the home, the lender doesn’t have to add it to its own “real estate owned” properties, and the buyer gets a good deal. However, be aware that there might be tax consequences to you in a short sale situation.

3. Deed In Lieu of Foreclosure

Mortgage DeedThere is another options as well. A deed in lieu of foreclosure is basically when you offer the lender the deed to your home. This is voluntary, and can save months of paperwork and expense for the lender. However, the result is often the same as a foreclosure, leaving the bank with a property that it is responsible for and must then unload. It can, though, limit some of the damage to your credit, although you are still going to take a credit score hit.

4. Assumption

If you know someone who is willing to take over the mortgage payments, you might be able to sign the title over to that person. However, this is often a transaction best undertaken before you fall too far behind on your mortgage payments. The great thing about assumption is that you can complete the transaction when you know you might be having trouble, and avoid some of the credit issues. You might even be able to convince the person taking over the house to let you remain there and pay rent, although he or she could make you leave once the home’s ownership changes.

No matter what you decide to do, make sure you thoroughly investigate the alternatives. Remember that state laws vary a little bit, so it is a good idea to consult a trusted real estate professional, or an attorney, so you understand the implications of your decisions. You need to make sure that what you are doing makes sense in your state, and that it makes sense for your financial situation.

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