How To Avoid Foreclosure (Complete Guide)
How to Avoid foreclosure of your home (complete guide)
How To Avoid Foreclosure
What is Foreclosure?
Foreclosure means that your lender can repossess (take over) your home. If this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe HUD an additional amount. (Only In Some States). Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure in every way possible.
Lenders may have some options to help you keep your home
These options work best when your loan is only one or two payments behind. The farther behind you are on your payments, the fewer options are available.
Don’t lose valuable time
Don’t think that your problems will quickly correct themselves. Contact your mortgage lender to discuss your situation as soon as you realize that you are unable to make your payments. While there is no guarantee that any relief will be given, most lenders are willing to discuss every possible option with you.
Expect to have more than one phone conversation with your lender
Typically, your lender will mail you a “loan workout” package. This package contains information, forms, and instructions. If you want to be considered for assistance, you must complete the forms and return them to your lender quickly. The completed package will be reviewed before the lender talks about a solution with you. The sooner you call; the sooner help is available.
Do Not Ignore Mail or Phone Calls From Your Lender
If you do not contact your lender, your lender will try to contact you by mail and phone soon after you stop making payments. You must respond to the mail and the phone calls offering help. If your lender does not hear from you they will be required to start legal action leading to foreclosure. This will substantially increase the cost of bringing your loan current.
Explore Loan Workout Solutions
First and foremost, if you can keep your mortgage current, do so. However, if you find that you are unable to make your mortgage payments, you may qualify for a loan workout option. Check with your lender to find out which of these options may be available.
If Your Problem Is Temporary – Call Your Lender
Your lender is always willing to discuss accepting the total amount owed to them in a lump sum by a specific date. They will often combine this option with a Forbearance.
Your lender may allow you to reduce or suspend payments for a short period of time after which another option must be agreed upon to bring your loan current. A forbearance option is often combined with a reinstatement when you know you will have enough money to bring the account current at a specific time in the future. The money might come from a hiring bonus, investment, insurance settlement, or a tax refund.
- Repayment Plan:
You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up.
If it appears that your situation is long-term or will permanently affect your ability to bring your account current – Call Your Lender
If you can make the payments on your loan, but you do not have enough money to bring your account current or you cannot afford the total amount of your current payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the following ways:
- Adding the missed payments to the existing loan balance.
- Changing the interest rate, including making an adjustable rate into a fixed rate.
- Extending the number of years you have to repay.
If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of this loan may be delayed for several years.
If Keeping Your Home is Not an Option — Call Your Lender
If you can no longer afford your home, your lender will usually agree to give you a specific amount of time to sell your home and pay off the total amount owed. You will be expected to obtain the services of a real estate professional who can aggressively market the property.
Pre-Foreclosure Sale or Short Payoff:
If the property’s sales value is not enough to pay the loan in full, your lender may be able to accept less than the full amount owed. This option can also include a period of time to allow your real estate agent to market the property and find a qualified buyer. Monetary help may also be available to pay other lien holders and/or help toward paying a few moving costs.
A qualified buyer may be allowed to assume your mortgage, even if your original loan documents state that it is non-assumable.
Your lender may agree to allow you to voluntarily “give back” your property and forgive the debt. Although this option sounds like the easiest way out for you, generally, you must attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if you have other liens such as judgments of other creditors, second mortgages, and IRS or State Tax liens.
Selling Your Home
If you need to sell your home, there will be many questions you have to answer. You will need to find how much your house is actually worth, and you will have to find a real estate agent you are comfortable with.
Avoid foreclosure prevention companies.
You don’t need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month’s mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.
Don’t lose your house to foreclosure recovery scams!
If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.
Special Disaster Relief Options – Call Your Lender
If your property has been damaged by a natural disaster; or if you have been called up for active military duty or affected by a national tragedy, there may be additional assistance available.
For additional information you may wish to view these links:
HUD has a toll-free number for servicemen and women with questions concerning their mortgage. For more information, call 1-888-297-8685 between the hours of 7 a.m. and 7 p.m. Central Standard Time on weekdays.
Contact Your Lender As Soon As You Have A Problem
Many people avoid calling their lenders when they have money troubles. Most of us are embarrassed to discuss our money problems with others or believe that if lenders know we are in trouble, they will rush to collection or foreclosure. Lenders want to help borrowers keep their homes. Foreclosure is expensive for lenders, mortgage insurers, and investors.
Finding Your Lender:
Check the following sources for lender contact:
- Your monthly mortgage billing statement
- Your payment coupon book
- Weblinks or customer service numbers found under “help for homeowners” lenders
Information To Have Ready When You Call:
- Your loan account number
- A short account of your situation
- Recent income documents (such as Pay stubs; Benefit Statements from Social Security, Disability, Unemployment, Retirement, or Public Assistance. If you are Self-Employed, have your tax returns or a year-to-date Profit and Loss Statement available for reference)
- List of household expenses
If you don’t feel comfortable talking with your lender, you should immediately contact a HUD-approved housing counseling agency and arrange an appointment with a counselor. A counselor will help you assess your financial situation, determine what options are available to you, and help you negotiate with your lender. A counselor will be familiar with the various work-out arrangements that lenders will consider and will know what course of action makes the most sense for you and your family, based on your circumstances. Also, the counselor can call the lender with you or on your behalf to discuss a work-out plan.
To find out more about HUD-approved housing counseling agencies and their services, please call 1 (800) 569-4287 on weekdays between 9:00 am and 5:00 pm Eastern Standard Time. You can also get an automated referral to the three housing counseling agencies located closest to you by calling 1 (800) 569-4287. To look at the list of these HUD-approved agencies by state on the HUD web site, click here.
When you call a consumer credit counseling agency, you will be asked to provide current information about your income and expenses. Make sure you ask if the agency has a charge before you sign any documents!
Good Luck With Everything!