Foreclosure Options: 12 Options You Have 

The number of foreclosures is starting to increase as the United States is slowly returning to normal after the global coronavirus pandemic. Once a foreclosure has been triggered, it can get progressively more difficult to stop it. Unless you take action to resolve the defaulted mortgage loan, you may be in a position where you could lose your home. 

There are a few ways that you may be able to avoid foreclosure, even during financial hardship. Some of them are more beneficial than others, but you should consider all of them and try to avoid foreclosure at all costs. 

Taking No Action 

It’s important to cover the consequences of taking no action so that you can see how crucial it is to avoid foreclosure regardless of your financial situation. 

The foreclosure process will end with the sale of your property. It will be at a public auction and sold to the highest bidder most of the time. You will have a set amount of time to vacate the property, or the local sheriff’s department will evict you. 

Your credit report will also be flagged for a total of seven years from the date of the first missed or late payment. That will not only lower your score significantly but will make getting another mortgage virtually impossible. 

These consequences are just the bare minimum, and they can change depending on the laws of your state. 


If you experienced a temporary setback and can resume normal payments, reinstatement is the best option. You would simply ask your lender for the reinstatement quote, and they will calculate the total debt by adding in the missed payments plus any fines or fees for being late. You would receive a firm deadline to pay the amount. If you make this payment, business will return to normal and all will be forgiven and forgotten.

Technically, a foreclosure starts on the day of your first missed mortgage payment. Most lenders will provide a grace period before they start tacking on late fees and additional charges. After this grace period expires, you will still have plenty of time to settle the debt. Federal law prevents foreclosure lawsuits from being filed unless the mortgage payments are delinquent for a minimum of 120 days

Repayment Plan 

The foreclosure process can be very expensive for mortgage lenders and often ends up costing them money in the long run. Most lenders are more interested in resuming payments than foreclosing homes, so they are often willing to work out payment plans. 

The exact details of a payment plan will vary based on your situation and lender, but most of the time, they will last for 12, 18, or 24 months as needed. The lender will almost certainly add in some late fees or other penalties in exchange for the service, so you’ll need to be paying more than your usual mortgage payments for a while. 

You may need to tighten your budget for a few hard months, but it definitely beats foreclosure. 


One of the most popular options for foreclosure avoidance during coronavirus was requesting a forbearance. It’s important to note that forbearance agreements are not forgiveness, as many were under the impression of this during the pandemic. 

A forbearance temporarily pauses all collections of mortgage payments for a specified period of time. The total will continue to grow with each passing month and will usually include late fees or other charges. When the forbearance period is up, the total amount will be demanded, and you will have to pay the entire total all at once. 

For example, a forbearance lasting six months would mean that you owed six months' worth of mortgage payments plus any additional fees added on. If you are unable to pay this amount in total, then the lender will likely pursue a foreclosure.

Rent Your Home

Houses get more expensive each year, and plenty of hardworking people are looking for a new place to live. Taking on a roommate can help you catch up on your mortgage and even get ahead. 

Renting a room in your house can help cut down on your mortgage payment by half, but you could even consider renting the entire home. As a homeowner, you have certain rights and could become a landlord in order to make some money off your investment. 

You would need to move out of the house, but that will happen anyway if you get foreclosed on. You would charge the tenants monthly rent that can go toward paying off your mortgage and a little extra to you as well. As a bonus, any upgrades or repairs that you make can be considered rental expenses and be written off on your taxes. 

You would need to enlist the help of a property manager to make sure the situation is legal, and that might be a little expensive. It’s worth looking into as you might not only be able to prevent your home from being foreclosed, but you could even make some money in the process.


A co-investment is like a cash out refinance but for homeowners who have trouble qualifying for one, typically due to payment history or credit score. Entering into a home equity agreement with a third-party investor like Balance Homes can help you pay off your mortgage and access much needed cash. 

Balance is an investor and not a lender. So they are able to offer more flexibility, such as having no minimum credit score to qualify. 

Balance can help homeowners pay off high interest debt, improve their credit score, lower their monthly payments, and get a fresh start.

Balance co-owners have ongoing access to a portion of their home equity to avoid setbacks while their credit recovers. Meaning you can submit a request to access additional cash if necessary to avoid missing payments or taking on high interest debt.

By maintaining your home equity and taking these proactive steps, Balance believes we can help you rebuild your credit and financial health — and create your path back to traditional homeownership.

There's no minimum term, so when you're ready you can exit by refinancing or selling the property when you're ready and keep your share of the proceeds.

Loan Modification 

Loan modifications are usually pretty complicated and only work less than 10% of the time. Essentially, you’ll be reworking your pre-existing mortgage in order to lower your monthly payments. Modifications are often confused for refinancing (more on those later), but they are not the same thing. 

Making changes to your mortgage will normally require the help of someone well versed in financial law. You might need to seek the advice of a lawyer, non-profit organization, or loss mitigation consultant to increase the odds of success. 

When modifying your mortgage, you will most likely need to add some time to the mortgage in order to lower your payments or make adjustments to your interest rate. A modification will normally end up costing you money in the long term, but it will help keep you in your home and avoid a foreclosure auction in the short term. 

Short Sale 

A short sale is when a homeowner tries to quickly sell off their home in order to minimize the damage of different types of foreclosure. The sale of the home is usually for much less than the total debt of the mortgage. 

After completing the sale, you would take the proceeds and use them to pay off as much of the mortgage debt as possible. You would most likely still be on the hook for the remaining balance, but your home wouldn’t have been foreclosed on. 

The lender may simply write off this debt and consider it forgiven. That will be viewed as income by the IRS, and you would be required to pay taxes on it. 


Refinancing your loan is a common way for people to adjust their mortgage payments once they have built up a lot of home equity and improved their credit score. You’ll be taking out a new mortgage with better terms in order to pay off your existing mortgage. Some people choose to stay with the same lender, but you would be free to seek out another lender if you were so inclined. 

If your credit scores have improved since you took out your mortgage, you might lower your monthly payments by qualifying for a new interest rate. If you can not get a lower interest rate, you might need to add a few years to the mortgage term to lower your payments. 

The whole process usually takes about 30 to 45 days as the property will need to be appraised, and your financial information will need to be thoroughly investigated. Since it takes so long to refinance a mortgage, it can be risky if you have already missed some payments. The mortgage proposal could be denied, in which case you’d end up even deeper into the foreclosure process.

Deed in Lieu of Foreclosure 

A deed in lieu of foreclosure will require you to willingly sign over the deed of your property to the lender in exchange for relief from the mortgage. It basically speeds up the process of a foreclosure and prevents the courts from getting involved, saving everyone valuable time and money, but it should be considered a last resort. 

The home would be placed up for public auction, and you would need to vacate the premises as you would with a foreclosure. A deed in lieu of foreclosure will appear on your credit report for four years, but it will typically be less damaging than a foreclosure.


Having a payment forgiven by your mortgage lender is easily the rarest option on this list. However, they have happened in the past and might be worth considering if all else fails. Mortgage forgiveness is exactly what it sounds like, as the lender will forgive your missed payment and act as though it was paid. 

The good news is that this will help you to avoid foreclosure and get back on track financially, but the bad news is that the IRS will get involved. If a forgiven debt meets specific criteria, the IRS will classify the amount as “taxable income.” If your debt forgiveness is more than the necessary amount, you would need to pay taxes on the total amount during your next annual tax filing. 


Bankruptcy is a common tactic used to avoid foreclosure, but it can often cause more damage than it prevents. A foreclosure will remain on your credit report for seven years, but bankruptcy can last anywhere between seven to 10 years and cause much more damage. 

Filing for bankruptcy can be overkill if you are only in debt due to your mortgage. You should only file if you are racking up an insurmountable debt in several other ways in addition to your mortgage. 

The Takeaway 

The foreclosure process can be long, expensive, and stressful for borrowers. There are plenty of options available that can help you stop the foreclosure process and purchase your home from escalating, but some of them are much better than others. 

Suppose you are currently in the middle of foreclosure proceedings or are struggling to maintain your monthly occupancy payments. In that case, you should start taking steps sooner rather than later, especially if you have already received a notice of default. Get a free proposal from Balance Homes today to see if you qualify for a co-investment opportunity. You may actually be able to avoid a foreclosure, stay in your home, and even lower your monthly occupancy payments in the process. 


How Long Does Bankruptcy Stay On Your Credit Report? | TransUnion

Deed in Lieu of Foreclosure | Investopedia

How Does Refinancing a Mortgage Work? | Experian

Learn about forbearance | Consumer Finance

Loan Modification Definition | Investopedia

How Long Does a Foreclosure Stay on Your Credit Report? | Experian

Short Sale (Real Estate) Definition | Investopedia

Foreclosure avoidance | Consumer Finance

Topic No. 431 Canceled Debt – Is It Taxable or Not? | Internal Revenue Service