Shelter is something most of us take for granted. But, in a tough economy, losing your home can be a very serious and scary reality. Regardless of the time and careful consideration most of us put into the decision to buy a home, unforeseen circumstances have forced many people into foreclosure. The large number of pages in your closing documents makes it easy to overlook — or misunderstand — the fact that your lender has the right to take your home from you if you’re suddenly unable to make your payments. If you find yourself near that point, don’t let fear of foreclosure push you even closer to losing your home. There are ways you can stop the foreclosure process. Foreclosure is the last resort for both you and your lender, because if your home goes into foreclosure, you and your lender both lose financially. Read on to the next page to educate yourself on 10 ways you can stop the process and stay in your home.
- Communicate with Your Lender
- Know Your Mortgage Rights
- Prioritize Your Spending
- Use Your Assets
- Modify Your Loan
- Forbearance and Repayment Programs
- Refinance Your Mortgage
- Pre-foreclosure Sale
- Emergency Mortgage Assistance Programs
Believe it or not, your lender wants to work with you to help you get back on track and make your payments. Foreclosure is no picnic for either party involved. And, frankly, both you and your lender lose in the end if it gets to that point. Even if you’re only beginning to worry about not being able to make your payments, talk to your lender. The earlier you address the problem, the better.
There are many programs in place and adjustments that can be made — either permanently or temporarily depending on your situation — to help you make your payments and keep your home. If you’re already delinquent on your payments, your lender will be sending you communications by mail. The worst thing you can do is refuse to respond because that could leave the bank no other option than to take legal action [source: HUD].
You may not have been concerned about all of the “fine print” during closing, but if you’re not making your mortgage payments, you need to know everything about the contract you signed. Although your lender has a right to repossess your home and force you into foreclosure, you have rights, too. Do your research to know what your rights are to help you avoid foreclosure. Pay special attention to dates and timelines to ensure you complete essential tasks on time and avoid legal action. Since laws and timelines vary by state, you should educate yourself on your state’s particulars by visiting your state’s government housing office or its Web site. You should also brush up on the foreclosure process in general. You may think abandoning your house will help the situation, when in fact your lender could hold you responsible for any vandalism or damage that occurs if you voluntarily abandon your home [source: Santich].
That cup of coffee you buy every morning may not seem like it’s breaking the bank, but have you ever added up how much you’re spending on coffee per month or per year? If you’re having trouble making your mortgage payments, you should review your budget and re-prioritize your spending. It might seem like you “need” cable or Internet at your home, but what good will these do you when the bank forecloses? Brainstorm ways you can reduce or completely eliminate spending to facilitate making your mortgage and other important payments. If you need a cell phone, consider a pay-as-you-go plan to cut costs. You could even try some eco-conscious changes around your home. After all, the energy you save from compact fluorescent light bulbs or greener HVAC settings will also save you money on your bills. And definitely do away with that morning cup of joe; it might be just what you need to make your full mortgage payment on time.
“Cash for gold!” We all know the commercial suggesting you send in your old and unused gold for cash. If you’re unable to make your mortgage payments, this might be something you want to consider. But don’t stop with just your unwanted jewelry. Take an assessment of all of your belongings. Is there anything you’re willing to part with that could make you some extra cash? Could you downscale to one car and carpool? That money you’ll get from selling your second car could very well cover several months’ mortgage. Is your guitar sitting in the corner gathering dust? If so, could you sell it or pick it back up again and start offering lessons at local schools? Taking steps to sell your belongings or even find new revenue sources will not only help you in the short-term, it may also help you in the long-term if you continue to miss payments; your proactive attempt to prioritize your spending and sell your assets could help build your case for keeping your home.
If you talk to your lender about the trouble you’re having making your payments, they might be able to modify your loan and ease your financial burden. Loan modifications are permanent changes to your mortgage. If you have a fixed-rate loan, this might include extending the period of time you have to pay your loan off or lowering your interest rate to reduce your monthly payment. Loan modifications are handled on an individual basis and may also include adding your overdue payments back into the balance of your mortgage.
A partial claim is a loan modification offered by the U.S. Department of Housing and Urban Development (HUD) for FHA-approved loans [source: HUD]. The FHA provides an interest-free loan to pay off your missed mortgage payments, and it doesn’t need to be paid off until you sell your home or make your last mortgage payment [source: HUD]. Another FHA loan is available through the Home Affordable Modification Program (HAMP). Like the partial claim, this FHA loan will help you pay off your missed payments, but may also provide additional money to help lower your monthly payment [source: HUD]. An advance claim is a similar program that may be available from your lender for a conventional, non-FHA mortgage.
In many cases, the reason someone is unable to make their mortgage payment is temporary. If you lost your job, the financial burden will only last until you are able to secure a new job. Perhaps your financials have been strained by an unexpected medical emergency. Whatever the reason, if you can assure your lender the circumstances are temporary, they may be able to grant you a special forbearance with a repayment program. Although special forbearance is an FHA term, your lender for a conventional loan will most likely have a similar program. A special forbearance is a temporary loan modification that may involve reducing or completely suspending your payments for an agreed-upon amount of time. Once you have recovered from your temporary financial strain, a repayment program will allow you to pay back your missed or reduced payments with a monthly amount you are comfortable with [source: HUD].
If the conditions are right, you may be able to hold off foreclosure by refinancing your mortgage. If you refinance, you completely replace your old mortgage with a new one that could extend the term of your loan, reduce the interest rate or change the type of loan — with the primary goal of lowering your payments. But remember, the benefits of refinancing will depend solely on the loans and interest rates available at that time. Wells Fargo recommends refinancing only if interest rates are at least one half of a percent lower than your current rate [source: Wells Fargo]. Since you’re obtaining a completely new loan, you will have to go through much of the same process you did the first time you applied, although it’s generally more streamlined with a refinance. If refinancing does not ease your financial burden enough, you may be in just as much trouble with the new loan, so be sure this is the best option for you to avoid foreclosure before you start the process with your bank.
If you’re certain you won’t be able to recover from your financial situation and stay in your home, you may be able to sell your home with the bank’s permission before the foreclosure process begins. A pre-foreclosure sale, also known as a short sale, allows homeowners to sell their home at current market value and use that money to satisfy their mortgage [source: Chicago Tribune]. Since the bank would lose money if the house goes into foreclosure, lenders usually allow the total of the mortgage to be forgiven with the sale total, even if it’s less than the total mortgage due [source: HUD]. If you have an FHA-approved loan, you may even be entitled to a relocation stipend as part of the pre-foreclosure sale [source: HUD].
If you’ve exhausted all of your other options to avoid foreclosure to no avail, you should consider a deed-in-lieu. This option involves voluntarily handing over your home to your lender [source: Hobson]. While this option does not seem as inviting, it still may be better than going through the foreclosure process. Not only will it save your credit score from the damages of foreclosure, you may receive relocation expenses if you leave your home in impeccable condition. Before you turn your deed over to the bank, make sure you understand the entire process. You should only consider this option if you’re completely upside down on your mortgage and could never recover any of the equity you have in it through a sale [source: Hobson]. You may also want to consult a tax adviser as well, since forgiven debt may affect the taxes you owe at the end of the year.
If the foreclosure process is too overwhelming for you or your lender is being difficult to work with, you may want to seek assistance from an emergency mortgage assistance program. Unlike scam artists who will try to charge you money or even trick you into signing your deed over to them, these organizations are government funded and free of charge. HOPE NOW, for example, provides debt management and credit and foreclosure counseling to help you manage your finances and prevent foreclosure [source: HOPE NOW]. If you’ve already missed payments, HOPE NOW has relationships with mortgage firms and investors and can help create a plan amicable to all parties to help get you back on track and save your home. The Homeownership Preservation Foundation or Making Home Affordable programs may also be able to help you avoid foreclosure. Just make sure you reach out to a reputable organization that is government funded to avoid foreclosure scams.