Understanding what happens in a foreclosure
Homeowners who do not make mortgage or tax payments on their properties are subject, by law, to foreclosure. Job losses, medical issues, and the poor economy have many Americans facing the loss of a home; however, regardless of the circumstances, foreclosure can often be avoided, provided you know what to do.
Work with your lender to avoid foreclosure
If you're unable to make your mortgage payment, it's absolutely imperative that you get in touch with your lender right away. As is the case with all of life’s problems, ignoring the situation will only make matters worse. In fact, homeowners who seek foreclosure help early are much more likely to avoid it. Understand that the mortgage company wants to avoid foreclosure as much as you do. If you lose the home, they have to carry the property as a negative asset on their books. They also lose the payment, as well as the interest you pay on your loan. Think of your lender as your partner in the deal. It’s simply good business for them to provide you with foreclosure assistance.
Video: 7 Ways to Stop Foreclosure
According to HUD, there are several steps you should take:
- Open your mail. The first notices you receive will offer important information about foreclosure prevention options that can help you.
- Know your mortgage rights. Read your loan documents so you know what your lender might do if you can't make your payments. Contact your State Government Housing Office to learn about the foreclosure laws in your state.
- Understand foreclosure prevention options. Valuable information about foreclosure prevention (also called loss mitigation) can be found on HUD’s website.
- Contact a HUD-approved housing counselor. The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. These counselors can help you understand your options, help you organize your finances and even represent you in negotiations with your lender, if necessary. You can find a HUD-approved counseling agency online.
- Prioritize your spending. Review your finances to see where you can cut spending in order to make your mortgage payment. Look for optional expenses, like cable TV, gym memberships, and entertainment that you can get rid of.
- Try to find other sources of income. If you have a car, jewelry, or other items that you can sell for cash, do it! Of course, selling your things can be painful, but it won’t send your credit rating plummeting or stay on your credit record for up to ten years. Can’t bear to part with your stuff? Try to find a second job to bring in additional income. These steps may not make up the shortfall entirely, but just making the effort demonstrates to the lender that you are willing to make sacrifices to stay in your home.
There are also other options to consider:
- Contact your credit card company and ask for a lower interest rate. If you have a good credit score, you may be able to get a new card with lower or even 0% interest. You can then transfer your existing balances to this no-interest-rate card.
- Consider borrowing from your IRA or a 401(k). You can use the money in your IRA for up to 60 days interest-free. You should only do this if you’re sure that you can return the money to the account.
Think about refinancing your home. The FHASecure plan allows families who had been making their mortgage payments on time before their loans reset, but who are now in default, qualify for refinancing.- Consider a debt consolidation loan. Debt Consolidation involves combining credit card debt, loans and other liabilities into one and taking out a single loan to pay it off. You can usually negotiate a lower interest rate for the single loan.
There are also steps you should absolutely AVOID!
- DO NOT use foreclosure prevention companies. The information and services you have to pay for when you work with a foreclosure prevention company are available FREE OF CHARGE from your lender or an approved housing counselor.
- DO NOT fall for foreclosure recovery SCAMS! NEVER sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD-approved housing counselor. Firms claiming that they can stop your foreclosure if you appoint them to act on your behalf are simply trying to find a way to capitalize on your financial problems. By signing an agreement with them, you could very well be handing over the title to your property!
Hope for Homeowners
Lenders have ways to help borrowers through these extraordinarily difficult times. These options include the new FHA “Hope for Homeowners Program,” for those who qualify. Through this program, your lender agrees to write your mortgage to a maximum of 90% of the appraised value and the government pays the discounted amount. Your loan is then refinanced into an FHA-insured 30-year fixed rate mortgage. Your lender agrees to forgive any outstanding debt, prepayment penalties and late fees. Participation in the program would not only allow you to keep your home, but you would have lower monthly mortgage payments. And you’ll get 10% equity in your home, even if you had no equity to begin with!
Video: Be aware of the possible tax implications of foreclosure
If you're unable to make your mortgage payment, you need to get in touch with your lender right away and let them know about your situation! They may be able to help you avoid foreclosure entirely. You should also consider the counseling, refinancing and debt consolidation options mentioned in this article. Your home is your biggest investment and you need to do whatever it takes to save it!
More resources:
HUD-Approved Counseling
(800) 569-4287 | TTY (800) 877-8339
Federal Trade Commission
1-877-382-4357
Consolidated Credit Counseling Services
1-800-320-9929
American Financial Service
1-800-931-4237
Debt Relief Services
1-877-750-4091
Debt Reduction Services
1-877-688-3328
US Trustee Program
202-307-2759