You bought a great a house a few years back. You were so excited about achieving your dream of homeownership.
Today, the dream has become a nightmare and you are now facing foreclosure. How can you avoid this?
Steps You Can Take to Avoid Foreclosure and Save Your Home:
Not paying on your home loan is far different than not paying your credit card bills.
Your home is a secured debt. This means that when you stop paying the lender will take back the house. Foreclosure.
Early on in the default process, you can still come back from the brink if you haven’t missed more than one or two monthly payments and the lender hasn’t spent too much trying to get you back in line.
As the foreclosure process moves along, the size of the delinquent debt owed and the bank legal costs that customers are usually charged mount higher.
Borrowers, who try to ignore their financial problems, and their lenders’ phone calls, will likely lose their homes.
Around 40 percent of people who are behind on their house payments never contact the lender. This is a huge mistake.
Understand that the foreclosure process is a well-oiled machine. Let’s say your payment is due on the 1st. Once the 16th rolls around and you still haven’t paid, the bank starts to look closely at you and the machine starts rolling.
Once this gets to 90-100 days, they are hitting you for legal fees on top of your mortgage payments, and you are in real danger of losing the home.
However, taking your house is the LAST thing the lender wants to do, no matter how much equity you have.
Banks are in the business of loaning money. They are not in the real estate sales business.
Foreclosing is expensive, it’s burdensome, and it’s stressful. No one wants that to happen. They want to get your loan back on track. That’s the goal.
How do you stop it then and get it back on track?
1) Get serious about stopping it. Put your pride on hold and don’t be embarrassed. Talk to the lender about all options.
2) As soon as you know you are going to be late on your first payment, contact the lender. Communication and honesty is appreciated and will be rewarded with understanding.
3) Never ignore the lender’s phone calls or letters. Ignoring it makes it worse and expedites the process. If you don’t communicate the problem with them, they will simply assume you don’t care and will be more aggressive in their strategy to take the home.
4) Stay positive. Your situation is not hopeless. Lenders deal with cases everyday like yours. You are not alone. No matter how angry they sound with you, do not take it personally. There are proven collection methods and they are going to use them on you.
5) Be honest about what you can do and be willing to sacrifice. They are not going to accept a payment plan where you pay back $100 per month in what you have in arrearages. You are going to have to show them you are committed to keeping your house. It may hurt financially but if you want to keep your house you will make the sacrifice.
6) Don’t over-promise and under deliver. Follow through as promised with any payment plans. If you promise an extra $500 per month until you are caught up, you better deliver. Failure to execute your promised agreement with result in no more agreements.
If you do all of this, you will likely end up stopping the foreclosure.
Here are some of the options you have in trying to save your home or your credit:
You can seek reinstatement in full of your mortgage if you bring late payments current in one lump sum by a specific date.
You can get a forbearance agreement where you are allowed to delay payments for a short period with the understanding that another option will be used afterwards to bring the account current.
You may seek a repayment plan, whereas the lender might agree to let you catch up by adding a portion of the past due amount to a certain number of monthly payments until your account is current.
You may ask for a mortgage modification where you can make your regular payment now, but cannot catch-up the past due amount. In this case, the lender might agree to modify your mortgage.
One solution is to add the past due amount into your existing loan, financing it over a long term. This is a very popular method.
Modification might also be possible if you no longer have the ability to make payments at the former level. The lender can modify your mortgage to extend the length of your loan.
For example if you have 25 years left on your loan, they may extend it to 28 years to help.
You may want to sell the house to save your credit. If catching up is not a possibility, and you let the lender know you are selling it, he might agree to put foreclosure on hold to give you some time to attempt to sell your home.
If none of that works….
If you can afford the normal monthly mortgage payment, but can’t afford to make up the delinquent amount and legal fees because the lender is proposing a relatively stringent repayment plan, you may want to consider filing Chapter 13 bankruptcy.
This temporarily halts the foreclosure process. The mortgage lender may have to accept a more borrower-friendly repayment plan, such as one that grants five years to repay the amount in arrears rather than one or two.
If you just need some extra time to sell your home consider refinancing via a “hard money” loan.
While they have very high rates and fees, the loans, usually from private individuals, can give people the couple extra months they need to find buyers. Most banks will be more than happy to take cash no matter how close it is to the foreclosure sale too. If a relative steps in with $10,000 to bring the loan current, a borrower can usually just hand it to the lender and go back to business as usual.
You must understand that late mortgage payments are very serious. Although they want to work it out with you, the lender is not going to simply let you negotiate a payment plan to bring you up to date with a review of the file.
Plan on sharing with them all of the details of your current financial situation including income and expenses.
Open communication and honoring whatever deal you reach is the key to saving your home from foreclosure.