You Can Stop Foreclosure, Here's How
While the economy is said to have ceased it's suicidal nose-dive, the journey back up is a long and difficult one. Many people are currently or will in the future be facing the option of foreclosure of their homes. Despite what many banks, consultants and professionals would have you believe, there are actually many ways that you can stop foreclosure of your home, save your credit rating and save your dignity. Below, find many of the answers and solutions that can stop foreclosure and help you save your home. Getting back up is always a struggle, but it doesn't have to be a losing battle.
Take these initial steps to prevent foreclosure. They may seem obvious to some people, but you'd be amazed at how often the obvious is overlooked:
Rainy day funds- Make sure you have something to fall back on in case of emergencies. No one expects an emergency situation, but, unfortunately, things happen. Jobs get laid off, accidents transpire, and even more extreme circumstances occur out of the blue. Don't be left without a small savings to dip into when things get ahead of you. Six months of mortgage payments is ideal, but homeowners should have at least two or three months saved up to help prevent foreclosure.
Home equity credit line- Set one up before there are any signs of a problem. Often home equity credit lines won't cost the homeowner a thing, can lock in low interest rates, and will save you in a pinch.
Prioritized spending and budgeting- They're ugly words that no one wants to hear, but sometimes we have to just cut back. Memberships, premium packages, vacation getaways, entertainment, and expensive hobbies should be questioned and weighed against the more important priority of keeping your home.
Don't miss a payment- You are better off missing a credit card payment or even utility bill than foregoing a mortgage payment. These monthly payments will affect your credit drastically, and can make all the difference when trying to apply for a loan or refinance situation. Dip into savings, skip the non-essentials or forego another bill to cover your mortgage payments on time.
Ask for help, it can't hurt- Friends and family are there for a reason. Now's the time to find out why.
Lenders don't want your home- Contact your lender as soon you see that you are running into a problem (i.e. loss of a job or second income, extended illness, accident, missing other payments). Immediate action is imperative. Don't avoid letters from your lender. Many of the available solutions are time-sensitive and will only work within a given period of time. Act now to ensure that you have the widest availability of options open to you. Some of the options listed below are applicable only in the initial stages, and others will help out even after the foreclosure process has begun. Here are a few to consider:
- Negotiations can be made with the bank for special payment plans taking certain circumstances (such as short term financial setbacks) into account, even after missing multiple mortgage payments. Lenders may offer more time to make up your payments if you contact them early enough and your financial difficulties or circumstances seem temporary.
- Minor temporary financial setbacks can also qualify you for special forbearance. This means that your 3-12 month back up can be transferred into 12-18 monthly payments, possibly over a longer period of time depending on conditions.
- Refinancing or adding the back payments to the loan balance is another option. Basically this means you would spread out the missed payment over a long period, incorporated within your monthly payments.
- Freeze or change the interest rate or make a note modification by extending the amortization period. In simple terms, monthly payments or interest rates can be reduced by renegotiating the length of your terms of loan.
- File for a partial claim. This is a unique type of loan that some people are eligible for. Partial claim loans will cover the missed payments.
- 4-12 monthly payments behind on an FHA mortgage loan may qualify you for a second interest-free mortgage.
- VA loan refunding is another specialized type of loan for veterans either in active duty or retirement. These terms are difficult to meet, so look into it early on in the process.
- Full payoff refinance is a new mortgage plan that pays off the entire balance of the old mortgage plus the arrearage and any legal fees accrued. If your equity is good enough on the house, even bad credit will not be a factor in this option.
*Avoid recovery scams*- Don't just sign over the ability to act on your behalf to anyone. Many con artists have connived the deeds right out from under people's noses this way. Never sign any legal documents without reading them over in full and getting a trusted professional attorney to approve of them first.
Once the foreclosure process has begun, the lender will give the borrower a certain amount of time to cover the missed payments, as well as the additional charges for filing the foreclosure. If paid, this will effectively stop the foreclosure process. Once the lender has filed a Notice of Default, you have much fewer options to work with. That is why it is always more worthwhile to deal with these types of situations immediately. Don't let embarrassment stop your from getting the widest range of choices available.
If you are unable to reinstate your loan for some reason, and the lender does not agree to work with you, aside from some of the above-mentioned courses of action, there are a few more options you can try:
Sell your home- Often independent or discount realtors can sell your home for you, allowing you to payoff the remaining debt owed, and leaving your credit clear.
Short sale- When your home is worth less than the amount you owe, you can work out a short sale with the lender, third party or investor for a short sale. This option is not good for credit, but it is better than foreclosure.
Deed-in-lieu- Deed in lieu of foreclosure basically means you are trading in your house in exchange for a cancellation of your mortgage debt. This is not the best option because it affects credit the same way a foreclosure would.
Bankruptcy- This should be a last resort in most cases. Consult a qualified legal professional for assistance with this process.
Give up the property- While this is a difficult option to consider, at times, it might be the best option (often this is better than bankruptcy). If your debt is large enough, it may not be worth putting in money for the short-term result of temporary living accommodations. Assess your current and foreseeable future economic situation and decide if a smaller living situation might be more economically sound.
Most of all, be informed. Know your rights. Every state has different laws and restrictions concerning time frames and foreclosures, so read up on them. In addition, read your loan documents and see what actions and time frames the lender has within their power.