1. A workout: this involves restructuring the loan with the loan holder; this can be done many ways which usually involves either lowering interest rates (don't count on it), accruals of interest, or extended maturity dates. Ultimately, most lenders don't want to have a mortgage in default and have to foreclose; they would prefer to work something out with the borrower.
2) Transfer of the mortgage to a new owner (transferability is dictated by the mortgage signed at closing); Mortgagors that are unable or unwilling to meet their mortgage obligations may be able to find a purchaser who can purchase the property from them before foreclosure happens. Of course, this may come at a huge loss of equity and possibly the mortgagor having to bring some funds to the closing, but it is more attractive than a foreclosure that ruins credit. I have also seen someone buy the place and leave the mortgagor in place as a rental tenant; it all depends on the price, etc.
3) Friendly foreclosure: This is a mortgagor who submits to the jurisdiction of the court and any right to assert defense or claims. This shortens the time a foreclosure takes. As a mortgagor, this should be one of the last resorts, next to a bankruptcy.
4) Prepackaged bankruptcy; This is very detailed and I would advise someone speaking with a Bankruptcy attorney.
5) Voluntary conveyance of the title to the mortgagee. Still ruins credit. The best possible alternatives to foreclosure are the first two options above. I have helped people find investors who were willing to buy properties at the balance of the note amount, sometimes a little less, and this has saved the mortgagor. It most likely is a tougher road to home in the co-op market.
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