What Causes Foreclosure & How Can Workout Loans Help?
In simple words: You buy a real estate property using a loan by a bank or a creditor but fail to repay the installments plus interest on time. In such a scenario, your lender can repossess the property according to a specific purchase agreement clause. This is known as foreclosure.
In some cases, the defaulting borrower may even owe the entire amount to be paid in a specific period, AKA the redemption period. As it seems, a foreclosure can be quite a hassle for real estate borrowers. It can significantly impact your credit history and also lead to poor financial stability.
Let’s take a look at some of the most common causes of foreclosures in the US real estate market.
1. Negative Equity
Did you know that negative equity is the top-most reason for foreclosures in the US? This issue is a leading consequence of price declines. Negative equity occurs when a real estate property’s worth falls due to micro or macroeconomic conditions. When this happens, a real estate’s best bet is to seek refinancing to cover the financial loss before a foreclosure.
2. Rising Interest Rates
Another common reason behind foreclosures is the soaring interest rate. While it may seem like small properties are significantly affected by interest rates, it’s untrue. High interest and volatile market conditions can make it difficult for you to repay the debt and hamper your credit score.
3. Death of the Borrower
Foreclosures can also happen due to the death of a borrower. For instance, a person is the sole provider and owner of his company, and he takes out a bank loan to buy a property. In case of his demise, the repayments will stop and the property will be repossessed by the lender.
Can You Prevent Foreclosures
Fortunately, there are some surefire ways to mitigate the chances of potential foreclosures.
Here are some suggestions:
- Find an alternative money lender to refinance your property.
- Try seeking financing from your relatives, friends, or family members to make timely loan payments.
- You can offer personal guarantee on the loan. While this isn’t the safest optionas it puts your assets at risk. It’s best to assess the situation and decide whether you can manage payments with a personal guarantee or not.
- Depending on the terms of the purchase agreement, you might be able to file a restraining order against the lender. This is relatively a short-term foreclosure prevention strategy.
How Workout Loans Can Help
A very productive and easily accessible solution to manage foreclosures is a workout loan. Private money lenders like Commercial Private Equity can help you get your property back by offering short-term workout loans to pay back the lender.
If you are struggling to pay off commercial loan installments, a workout loan can help you negotiate with the lender, thereby eliminating the business debt.
Commercial Private Equity is a leading private money lending firm in the US. We offer specialized loans such as commercial hard money, construction loans, bridge loans, and raw land loans.
If you’re looking for flexible nationwide financing options to purchase land for development, construction, or resale purposes, apply today!