If you are having difficulty making your mortgage payments because you have lost a job, had a reduction in income or had an increase in your payments, foreclosure may be avoided. Here are some steps to take:
1. Don’t ignore the problem. The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
2. Contact your lender as soon as you realize that you have a problem. Lenders do not want your house. They have options to help borrowers through difficult financial times.
3. Open and respond to all mail from your lender. The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notices of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
4. 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 and a trained real estate professional will provide free.
5. Don’t lose your house to foreclosure recovery scams! If any firm claims they can stop your foreclosure immediately and 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 or a trusted real estate professional.
6. Examine foreclosure prevention options. Because of recent Federal legislation, an eligible homeowner facing foreclosure has several options based upon lender approval:
- Loan Modification – You may qualify for a loan modification to make your monthly mortgage payment more affordable. Millions of borrowers who are current, but having difficulty making their payments and borrowers who have already missed one or more payments may be eligible.
- Short Sale – You may qualify to sell your property for less than is owed to the lender. Under recent legislation, Home Affordable Alternatives Program (HAFA) has standardized the process and dramatically shortened the time frame on eligible loans. In addition to other requirements, the program requires that you list your home for sale with a qualified real estate professional. (Shameless plug…Better Homes and Gardens Real Estate Metro Brokers has a team of real estate professionals who specialize in the facilitation of short sales at NO cost to the homeowner.) 🙂
- Deed In Lieu of Foreclosure – You may qualify to transfer ownership directly to the lender in full forgiveness of the loan…even if you owe more than the house is worth.
In order to be eligible for any of these options under the recent federal legislation, the following guidelines apply:
- The home must be your Primary residence.
- The amount you owe on your home must be less than or equal to $729,750.
- A financial hardship makes it difficult or impossible for you to make your payments. The financial hardship must be a result of having had a significant increase in your mortgage payment OR a reduction in your income since you got your current loan OR you have suffered a hardship that has increased your expenses (like medical bills).
- Your loan must have been obtained prior to January 1, 2009
- Your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues, if applicable) must be more than 31% of your current gross income.
Even if your loan isn’t eligible under the guidelines above, you may still be able to negotiate an alternative to foreclosure with your lender.
Each of the foreclosure alternatives should be explored before allowing your house to go into foreclosure. Although all of them will have a detrimental effect on your credit, none of them will affect it as severely as a foreclosure. Because of the different potential tax consequences that may apply to you depending upon the path taken, consult an attorney and/or tax advisor.
Has this entry been helpful? Let me know if you need more information on foreclosures.