Foreclosure Alternatives

Whether you anticipate yourself falling behind on your mortgage or are already behind, know that you do have several options available to you. There are alternatives to foreclosure that do far less damage to your credit. Consider the following…


If you want to keep the home:

  • Bring payments to current (also, “reinstatement”)
    In Illinois, a homeowner has 90 days from their Notice of Default to bring their payments current. This includes all past-due payments along with any fines and fees associated with foreclosure proceedings.
  • Rent the property
    This may be an option for homeowners with mortgage payments low enough that a rental payment allows the mortgage to be paid. Keep in mind that there are additional responsibilities such as taxes, insurance, landlord duties, etc., and the rental income may not ever cover your expenses entirely.
  • Loan Modification
    If you have fallen behind on your mortgage payments, you may find that your situation changes and you now have enough money to make payments again but are unable to catch up with past payments. In this case, your lender may adjust the terms of your original loan in a number of ways, such as absorbing the delinquent payments and adding them to the back-end of your loan, lengthen the payment period, lower the interest rate, or make an adjustable fate fixed. A homeowner must exhibit financial hardship and provide full documentation to their lender.
  • Refinance
    If you have equity in your home and your credit is in good standing, then you may consider refinancing an unaffordable loan to achieve lower payments. Current home values should be taken into account when considering refinancing to ensure that you qualify.
  • Payment Plan (also, “forbearance”)
    This is a temporary solution that allows you to pay a portion of your regular payment, or no payment at all, for an agreed to period of time based on your financial situation. Once the forbearance period has ended, you begin making your regular payments plus an additional amount to pay off the past-due amount.


If you cannot keep the home:

  • Short Sale
    If you owe more on your home than it is worth and do not want to declare (because it will not resolve your financial situation), then you may want to consider hiring a short sale expert to assist you with the sale of your home and negotiate a short sale agreement with your lender. See our short sale vs. foreclosure page to see the benefits of a short sale over foreclosure. The waiting period to establish credit history after a short sale is generally 2 years compared to 5-7 years following a foreclosure.
  • Deed-in-lieu of foreclosure (also, “friendly foreclosure”)
    This means that you return the deed and house to the bank, instead of facing foreclosure, and walk away. Lender approval is required and this is not an option for you if you have more than one mortgage. The mandatory waiting period to establish credit history after a deed-in-lieu has been lowered to 4 years compared to the 5-7 years following a foreclosure. While a deed-in-lieu may have less of an impact on your ability to own a home in the future than an actual foreclosure, a short sale is generally a better option if you are going to cooperate with your lender.