Stopping
Foreclosures
Ways to Stop Foreclosures
Home owners
who are facing foreclosure often dread dealing with the facts that
got them to that place. If they think back to when they first bought
that home, losing the home was probably the furthest thing from
their mind. Few home owners actually plan to go into foreclosure.
Reasons For Pending
Foreclosure
Apart from those who knowingly participate in mortgage fraud --
with the intention of never making a single payment -- most homeowners
face sudden extenuating circumstances that force them to stop making
timely mortgage payments. Here are a few of those reasons:
- Job loss / unexpected
unemployment
- Sudden illness or
medical emergency
- Death in the family
- Divorce / loss of
second income
- Excessive debt obligations
- Job demotion or promotion
denials
- Inability to pay an
adjustable interest rate that increases
- Unexpected major home
maintenance expense
Ways to Avoid Foreclosure
The best way to avoid foreclosure is to prevent the filing of a
Notice of Default. Lenders do not want to foreclose but will file
a Notice of Default to protect their interests, if necessary. If
you know you are unlikely to meet your mortgage obligation, the
first thing you should do is call your lender.
Don't put it off, be
embarrassed or ignore letters from your lender because those responses
will make the situation worse, not better. Depending on your particular
situation and hardship circumstances, here are some options your
lender might propose to you:
- Time to make up
your payments.
Lenders might agree to wait before taking legal action against
you and let you work out a repayment plan that is affordable for
you. This is called forbearance.
- Forgiving a payment.
If you can agree on a way that you will be current after missing
a payment or two (without the means to pay it back), the lender
might give you a break and waive your obligation. This is called
debt forgiveness, and it rarely happens.
- Spread out the
missed payments over a longer term.
For example, if your payment is, say, $1,200 a month, the lender
might let you add $100 a month to each payment for a year until
you are caught up. This is called a repayment plan.
- Changing the terms
of your loan.
If your mortgage is an adjustable loan, the lender might freeze
the interest rate before it increases or change the interest rate
to a more manageable rate for you. A lender might also extend
the amortization period. This is called a note modification.
- Add the back payments
to your loan balance.
If you have sufficient equity and meet the lender's lending guidelines,
the lender might increase your loan balance to include the back
payments and re-amortize the loan. This is called a refinance.
- Make a separate
loan to you.
Certain government loans contain provisions that let borrowers
who meet specific criteria apply for another loan, which will
pay back the missed payments. This is called a partial claim.
Ways to Stop Foreclosure
When the lender files a Notice of Default, your options are limited.
That is why it is better for you to call your lender before falling
behind on your payments, because lenders are often reluctant to
work out repayment schedules after foreclosure proceedings have
been commenced.
You will be given a certain
time period to bring the payments current, pay the costs of filing
the foreclosure and stop the foreclosure. This is called reinstatement
of your loan. If you cannot make up the missed payments and the
lender will not work with you, here are a few other options to stop
foreclosure:
- Sell Your Home.
Interview real estate agents to get an opinion of market value
and average DOM to sell your home. You might be tempted to hire
a discount broker, but many sellers feel they need the exposure
and marketing that full-service brokers offer. Compare both to
determine which best meets your needs and time frame.
- Consider a Short
Sale.
If your home is worth less than the amount you owe, you might
be a candidate for a short sale. A short sale affects credit but
it's not as bad as a foreclosure. You or your agent will need
to negotiate with your lender to find out if the lender will cooperate
on a short sale. This is called a pre-foreclosure redeemed.
- Sign a Deed-in-Lieu
of Foreclosure.
This is called deeding the home back to the lender. The homeowner
give the lender a properly prepared and notarized deed, and the
lender forgives the mortgage, effectively canceling the foreclosure
action. Lenders tell me that deeds-in-lieu of foreclosure affect
credit the same as a foreclosure.
The lender might also work an arrangement where a home owner can
remain in the home until finding a place to move into. Owners
in default should negotiate the right to retain occupancy, arguing
that if the lender followed through on the foreclosure, an owner
would still enjoy the right of possession during that procedure.
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