This guide does not attempt to replace legal advice and is certainly not a replacement for a real estate advisor. Receiving a notice of foreclosure can be the most dreaded, most sinking feeling one has ever experienced in one’s life. Thankfully, there are some insider’s tips that can help you reset the clock, work out affordable payments with your lender/ Mortgage Company and keep the house. Here are some ways to stop foreclosure:
1. Get organized, be positive, act now
Once they have received a foreclosure notice, many people sink into hopelessness. The first thing, no matter how hard it may seem, is to snap out of it. You cannot afford to get depressed now. Try using stress management techniques and meditate. These will help you relax and calm down so you can work out the next steps. One of the first steps to take is assess your financial situation. Start by creating a monthly budget. Look for ways you can increase your income and reduce household expenses. Talk to friends, people you love and get your family on board.
Remember: Put your health first, mortgage payments second and other bills last.
2. Read about mortgage prevention techniques
The more you educate yourself, the better it will be. Go on forums or visit the public library to get books on foreclosure prevention in your state. There are many liquidation options as well as options like Bankruptcy, Refinancing and Stop Foreclosure Government Help programs. HOPENOW is an alliance between HUD counseling agents and mortgaging companies. They provide free foreclosure assistance. Visit their website here.
3. Analyze the problem
Is the foreclosure due to financial reasons or non financial reasons like divorce? In case it is the latter, you must work with your partner in a united manner. Divided-you lose and the lawyers win, united you get to keep the house. So bring your partner on board. Keep your differences aside. Consider setting up an amount in escrow with the lawyers for the proceeds and disbursements rather than letting the equity go down the drain.
- Prepare an accountancy statement. Determine your equity. If you have 10% of value as equity, you certainly do not have bankruptcy as an option.
- Consider whether the property is saleable. Is it re-financeable?
- Can you try reducing monthly payments?
- Consider the area-is it improving, stable or deteriorating?
- Do you have available cash or resources you can use to save the property?
4. Understand when it is too late to stop foreclosure
A foreclosure can be divided into 3 time periods: pre-notice of default, notice of default and trustee’s sale period. Your ability to stop the foreclosure decreases with the passing of time. Many people make the mistake of hoping that everything will be alright and the money will come in some way. This does not happen. So act now and try to solve the problem in the first phase/period.
5. Contact your lender
Here are some specific questions to ask your lender.
- Ask about foreclosure prevention techniques
- Talk to the Loss Mitigation Department
- Review your prepared balanced sheet with the lender
- Create your log
- Ask about your options and document everything
- In case you do not get answers to all your doubts, call the lender back and speak to someone else.
- Follow up regularly with the lender
- Open all mail and answer all lender calls
6. Beware of foreclosure scams
This may be the last thing on your mind but there are people looking to make a quick buck from your situation. It is important that you only work with HUD approved counselors. Remember that HUD approved counseling is free and you need not have to pay an arm and leg for it. Be especially wary of guarantees. If something sounds too good to be true, then it probably is. Know what you are signing up for and only then go ahead. Do not let anyone pressurize you into signing something you have not understood.
7. Rebuild and re-establish your credit
If your credit rating is good, well done! Keep it that way until you get your loan. If you have credit issues, consider positive ways to handle them. Answer the following questions honestly:
- Can you correct the scores? If yes, do it immediately.
- Is there any favorable point you have not added to the credit report? If possible, get letters from investors stating amount you have borrowed and if paid in timely manner or the dates of partial payments and so on.
- Could you get financial help from friends or relatives with good credit score?
It takes 90 days to clean up credit report with all reporting agencies. So plan this operation in advance when you are looking for a loan. Do this before you give your application to anyone. Never underestimate the power of the credit report! Check out my article on easy ways to improve credit score.
8. Know thy enemy
A property owner’s strength comes from knowing the strengths, weaknesses, legal and financial capabilities of various beneficiaries. We cannot overemphasize how important it is to know the financial condition of the bank/lender.
9. Consider liquidation options
If you simply cannot afford to live in the home and also haven’t been able to sell it, then you could go for liquidation. In this, one option is selling. But before you do so, please check comparisons of similar homes in your area. Talk to a realtor or check online sources. Be realistic in that; understand that houses can take months, even years to sell.
10. Consider repayment plans
This is a form of forebearance where you pay the outstanding amount in installments divided over a period of time. Repayment agreement gives borrowers a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with regular mortgage payment.
11. Discuss loan modification
Talk to your lender about modifying the terms of the loan. There are several options here such as altering (extending) the number of years to be repaid on the loan, or changing adjustable rate mortgage into fixed rate mortgage. If you have non equity status, you can use following options:
- Reduce monthly payments and/or reduce loan amounts
- Ask lenders to allow you to live in the property rent free for 6-10 months in lieu of deeding the property back to them and without going through bankruptcy of foreclosure.
12. Detach yourself emotionally from the property
Yes, your home is your dream home and you’d want to do everything to save it. But you need to take decisions objectively and quickly. Consider it your friend’s property-what advice would you give him? It is not a good decision to gamble everything to save the house from foreclosure. Objectivity is important. If you are healthy and well financially, you can come back and repossess your property. Understand that you are looking to win the war and not a single battle. There is little sense in losing the equity in the house because you failed to take the right decision.
13. File for bankruptcy
Bankruptcy allows homeowners who are behind on their payments with the need to stop foreclosure some time to organize their finances. This is done with eliminating or reducing unsecured debt as well as preservation of both real estate holdings and vehicles. An attorney can guide you further. Note that there are advantages as well as disadvantages in this system.
As can be seen, there is no easy way around foreclosures. We hope this brief guide has given you some pointers. Talk to your HUD counselor to seek sound advice and save your property.