Pre-Foreclosure Strategies
The home you own is more than just your most significant asset. For most people, it's also a source of pride and joy. We move into a house, and over the years we make it our home-the place we go to relax, reenergize, to share some of the best moments of our lives. For many of us, home is the ultimate expression of who we are, and the bond we have with it is deep.
So it's not surprising that the threat of foreclosure is devastating to anyone facing it. Not only are you in danger of losing the roof over your head and potentially ruining your credit, but you may lose that source of pride and joy that's given you so much over the years. if foreclosure looms,, it's absolutely imperative to do everything in your power to avoid it.
How can you avoid foreclosure? This helpful guide will help you find practical solutions to the financial problems you're facing-and may help you save both your home and your credit rating.
Please be aware that foreclosure is a complex process with the potential to wreak havoc on your life and livelihood. If you are already facing foreclosure, we strongly advise you to contact your lender or a foreclosure specialist immediately.
TIP #1 TAKE ACTION AS SOON AS THERE'S AN INDICATION OF A PROBLEM
Financial difficulty is never an easy thing to face, but ignoring it and forgetting about it is definitely not going to make it go away. The day you realize you're heading towards financial problems is the day you should start assessing your situation and looking for acceptable solutions. While it's going to take a lot of work and likely give you headaches throughout, it's worth that temporary pain to avoid the more lasting, devastating effects of foreclosure. Waiting around won't solve anything, and will probably make your situation worse.
TIP #2 EVALUATE YOUR SITUATION CAREFULLY AND THOROUGHLY
Before you can fix your financial problems and find an acceptable solution to foreclosure, you need to figure out how you got where you are and wheter the situation is critical. The following questions will help you get started:
How did I get into this situation?
There are a number of reasons why homeowners find themselves facing money problems and foreclosure. Below is a list of common causes:
•· Unemployment
•· Cuts in work hours, pay or overtime
•· Retirement
•· Illness, injury or death in the family
•· Divorce or separation
•· Natural or man-made disasters
•· Drastic increases in living expenses, taxes and/or insurance
•· Rate resets on sub-prime mortgages
•· Failure to budget and/or bad spending choices
Depending on the cause, there may be various solutions open to solving your problems.
How bad is my financial situation right now, and how long do I have before it's going to become an issue?
Once identified the source of the problem, you need to determine exactly how bad the situation really is. If you're smart and start planning early, you may be able to avoid the risk of foreclosure entirely. To arrive at a true assessment of your situation, take stock of monthly income and expenditures; set a timetable to estimate how long you have to find a solution; and determine where you can cut your expenses to save money for the essentials like your loan. Write a budget, including in it as much information as possible to aid you and anyone helping you to avoid foreclosure.
Is there anything on the horizon that's going to alleviate my financial situation?
In assessing your finances, don't forget to take into account any windfalls and other incomes that might be waiting on the horizon to help you out of your situation. If your money problems are only temporary, then you simply need to find ways to cut costs until things improve. Here are some examples of potential sources of relief:
•· Tax refund
•· New career, professional promotion or seasonal bonus
•· Inheritance or other legal settlement
•· Temporary second job
•· Collection of any money owed to you
•· Sale of disposable assets
TIP #3: CONTACT THE PEOPLE WHO CAN HELP YOU THE MOST
No, we don't mean a rich relative or a friend who owes you a favor. The people who can help you the most with your financial difficulties are those who have a vested interest in solving them: namely, the folks at the lending institution holding your mortgage. While most people balk at the idea of revealing a failing financial status to a lender for fear it might lead to a push for foreclosure, this simply isn't the case.
As holder of your loan, your lender has a vested interest in helping you keep your property and continue to pay off your mortgage. Legal proceedings involved in foreclosures are costly and time-consuming, so it's in your lender's interest as well as yours to see that your ability to make payments is not impaired. In addition, lenders are required by law to be aggressive in providing assistance once you disclose there's a problem.
It's vital to contact your lender as soon as possible once you realize there's a problem. If the budgeting you calculated in Tip #2 won't allow you to avoid missing a mortgage payment, contact your lender immediately. Lenders have plans to help owners who have fallen on hard times keep their homes, but most of them work best if you're no more than two payments behind. When you call your lender, have your account number, a brief explanation of your circumstances, the household budget you made and recent income documentation on hand.
TIP #4: DIREGARDING THE LENDER PAVES THE WAY TO FORECLOSURE
No matter how much you may want to, do not avoid calls from your lender. If you don't call your lender before you start missing payments, your lender will try to contact you. If a loan officer is not able to reach you, the law requires that the foreclosure process be initiated. This event is likely even if you have contacted your lender but then avoid taking calls as your money problems worsen. The cost of any legal action your lender, takes will be added to the amount of money needed to bring your loan current, so by adopting a strategy of avoidance, you're increasing the amount you will need to keep your home.
TIP #5: SOLUTIONS TO EXPLORE TO AVOID FORECLOSURE
Dealing with the lender, either on your own or with the help of a housing or consumer credit counselor, (see tip #6) your budget can help you determine whether you might be able to avoid foreclosure through one of the following loan workout options:
•· Reinstatement: this workout option allows you to pay the total amount owed to bring your loan current by a specific date. This option is usually geared towards pre-foreclosure borrowers who will be receiving a large lump sum of money in the near future-a tax refund, settlement or inheritance, perhaps.
•· Forbearance: This option allows you to reduce or suspend payments for a short time, after which another option must be used to bring your loan current. Forbearance is often used in coordination with reinstatement.
•· Repayment Plan: This option allows you to resume making your regular monthly payments, adding a portion of the missed payments to each month until you are current. This is a good option forborrowers who've found ways to reduce their expenses by budgeting to catch up on debt payments.
•· Mortgage Modification: This option allows your lender to change one or more of the terms of your loan to make payments more affordable-usually by extending the time you have to pay off your mortgage or by changing the interest rate. This is a good option for anyone who can budget to reduce monthly expenditures, but may still not be able to afford their current mortgage payments.
•· Claim Advance: If your mortgage is insured, then you may choose this workout option, which involves qualifying for an interest-free loan from your guarantor to bring your account current.
TIP #6: IF THE PROBLEM'S TOO BIG, IT'S TIME TO ASK FOR MORE HELP
If you and your lender can't come up with a plan to avoid foreclosure, don't give up. You need to contact a HUD-approved housing counselor immediately. Using the household budget you made in Tip#2, your counselor will assess your situation to see what options are available to you.
Once you've determined your plan of action, the housing counselor will contact your lender, help with any negotiation that might be necessary to make your plan work, and coordinate with your lender to ensure that this plan will be approved if reduced or delayed payments are required. Scheduling reduced or delayed payments before they become necessary will keep these altered payments from affecting your credit score.
In addition to a housing counselor you may also want to speak with a nonprofit consumer credit counselor-especially if your financial difficulties extend beyond the threat to your mortgage. A credit counselor can help you prioritize your budget to minimize the damage to your credit score.
Remember, while adversely affecting your credit with debt is definitely a problem, losing your home because of foreclosure is far worse. Your mortgage payment should always be one of the highest priority in any budget you make.
TIP #7: WHAT TO DO IF FORECLOSURE CAN'T BE AVOIDED
If you assess your budget, work with a counselor, and explore all the options with your lender, but still can't find a solution, then it's almost certain you will not be able to keep your home. In this case, you still want to avoid foreclosure if at all possible to save your credit from either damage and preserve future housing options. Remember, your credit score will be examined by any prospective landlord, and a foreclosure could jeopardize your ability to find a good place to rent in the future.
Depending on your circumstances, there are several options that may mitigate the consequences if you are facing imminent foreclosure:
Sale: If you choose to put your home on the market before the foreclosure process begins, you may be able to avoid credit problems entirely. Simply let your lender know you're in the process
of selling to avoid foreclosure, and negotiate a time frame in which you can pay off the total amount owed.
If you're attempting this option, don't cut corners. Don't try to sell on your own, and don't be greedy. Your goal in this case is to sell your home as quickly as possible for an amount that will at least cover the amount owed on your mortgage. Hire a Realtor® with an aggressive marketing and sales strategy, and do whatever it takes to get your property sold within the negotiated time period.
Pre-Foreclosure Sale or Short-Sale: If poor market conditions prevent you from making enough money on the sale of your house to pay off your mortgage in full, then your lender may be willing to accept less than the full amount owed. Be prepared to provide your lender physical proof of the work you and your Realtor® put into getting your home sold. Please note that this option could adversely affect your credit rating.
Assumption: If conditions allow, a qualified buyer may be allowed to assume your mortgage, even if the original loan documents state it is non-assumable.
Deed-In-Lieu of foreclosure: If none of the above options work and you have physical proof of your aggressive and extensive attempts to sell under a qualified Realtor®, then the lender may allow you to voluntarily "return" your property to them and forgive the debt. In most cases, lenders will only consider this option after you've attempted to sell the property at fair market value for at least 90 days with no results.
TIP #8: AVOIDING FINANCIAL PREDATORS
While most mortgage and credit firms are reputable companies providing valuable services, there are disreputable operators out there waiting to prey on the unwary. These predators generally feed on high-risk borrowers-especially those facing foreclosure. They will claim to be able to make your problems disappear, but it's almost guaranteed they'll make everything worse.
Loan Sharks: From the instant your lender begins any legal action towards foreclosure, your phone will start ringing. Companies you've probably never heard of will offer enticing refinancing offers and credit-extending "debt solutions." Because you're desperate to do anything to save your home, these offers may sound tempting. Don't do it! Predatory loan sharks simply set you up for failure and greatly increase your chances of foreclosure tenfold.
Remember, if you can't afford your current level of debt, and your lender and counselor couldn't help you find a solution, it's unlikely that an unsolicited "solution" is going to help in the long run. If you accept a new loan to bring your mortgage current, you've also just increased your overall debt load, and it will be even harder to budget to keep your home and maintain you standard of living.
Equity Skimmers: These predators offer to repay the mortgage or sell the property if you sign over the deed and move out. Signing over your deed, however, does not waive the obligation you assumed in taking out your mortgage.
Unless this buyer assumes the loan with the approval of your lender, you are still obligated in the eyes of the company that holds your mortgage. These scam artists take your deed, rent the property illegally, and then disappear by the time the bank comes to foreclose on your property. Being duped by an equity skimmer is just about the worst situation you can put yourself in, so don't be taken in by any would-be saviors who magically show up at your door.
Phony Counseling Agencies: Most housing and credit counseling agencies do not charge a fee. They almost never ask for compensation upfront. If you get a call from an agency offering to solve your problems for a fee-especially a substantial one -don't do it! Instead, find a HUD-approved housing counseling agency or a nonprofit credit counseling agency.
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