We all know that hindsight is 20/20 and that concept most certainly applies to your mortgage. With hundreds of thousands of Adjustable Rate Mortgages and complex Interest Only loans about to incur rate increases, now is the time to get the hindsight so you can avoid foreclosure in advance! Regardless of whether you are in trouble with your mortgage payments for medical reasons, a job change or layoff or simply because your mortgage payments have increased to any amount you can no longer afford, knowing how to avoid foreclosure in advance is crucial to protecting your home, your credit rating and the equity you have in your house. Essentially, foreclosure (or, in some states, a trustees sale) occurs when you fail to make your payments and the mortgage company takes legal action to repossess your home. In some states, you have a right of redemption which allows you to repurchase your house for a period of time after the foreclosure, but in many states (and most western states) once a trustees sale occurs, you have no further right to occupy or repurchase your home and you must move out. Even if you live in a state where you have a right of redemption, it is nearly impossible to obtain financing to repurchase your house, so practically speaking, you will not get your house back under the right of redemption. If at foreclosure your house is worth less than what you owe on your mortgage, the lender can seek a deficiency judgment against you, and thus, not only do you lose your home, you still owe them money! In some states, such as Arizona, a lender can not seek a deficiency judgment against you for your first mortgage, but they can for a 2nd or 3rd lien. Every state is different, so you will need to consult a local attorney familiar with the laws in your state for more specific advice. If youre in trouble with your mortgage payments, the first thing you need to do is contact your mortgage company and let them know. Prepare all your financial information tax returns, bank statement, pay stubs, etc. and dont abandon the property. If you leave the house its harder for anyone to help. You have a variety of options. In some cases the government can help. Sometimes your mortgage company will assist, and other times you need the help of a professional firm with the financial resources and experience to get you back on track. Here are some of your options: Mortgage Modification Its possible to refinance the debt and/or extend the term of your mortgage loan. This gives you a chance to get back on track by reducing your monthly payments to a more affordable level. This works if youre already in recovery from a temporary financial problem, but your monthly net income is still less than it was before you defaulted. Deed in Lieu of Foreclosure The absolute last resort is that you may be able to voluntarily "give back" your property to the mortgage company. You dont save your house, but it does help your chances of getting another mortgage loan in the future because you will not have a foreclosure on your credit report. You can qualify if: 1. Your lender is willing to cooperate with you.
2. You are in default and you cant qualify for any of the other options
3. All attempts at selling the house before foreclosure were unsuccessful and
4. You don't have a 2nd or 3rd lien behind your 1st mortgage. Partial Claim If you meet the following requirements, your mortgage company can possibly secure an interest free loan from HUD to return your mortgage to current status. 1. Your loan is at least 4 months delinquent but not more than 12 months delinquent;
2. Your mortgage is not yet in foreclosure, and
You are able to begin making full mortgage payments When you file a Partial Claim, HUD helps out by paying your mortgage company the amount required to bring your mortgage current. If you secure a Partial Claim you have to sign a Promissory Note and a new Lien is placed on your property until the Note is paid in full. The benefit is that the Note is interest free and will be due if you sell or leave the property, or when your mortgage reaches maturity. Pre-Foreclosure Sale With a pre-foreclosure sale, you simply sell your home before the bank completes the foreclosure. This has been a good option the last couple of years, but not that the housing market is starting to slow down, it is more difficult to sell you house quickly. The benfit of selling your home is that it allows you to pay off your mortgage thereby avoiding foreclosure and helping to save your credit rating. Special Forbearance Your mortgage company can possibly arrange a new repayment plan based on your current/changed financial situation. Its possible that they may provide a temporary reduction or suspension of your mortgage payments. This is possible if youve lost or changed your job, or had a dramatic change in your expenses (medical emergency, etc.). Youll have to provide them proof that youll be able to make the payments on the new payment plan. Refinancing Another option to save your house is to obtain a new loan to pay-off your loan that is in default. Traditional lenders will not make a loan to you if you are in foreclosure or are 90 days behind in your payments and about to go into foreclosure, but hard money or private money lenders can provide such financing. Such alternative hard money lenders make their loan based on the value of your property as opposed to your credit rating. Some alternative hard money lenders require proof of an ability to pay the new loan, but many do not. Rates from such lenders are much higher and range from 11% to 18%. They also typically charge substantial fees to make the loan, although the fees are generally paid from the proceeds of the loan. One benefit of these high cost loans is that if you are working and can afford the new higher payments, you can use the loan to save your house from foreclosure and within 12 to 24 months, you can improve your credit rating enough to qualify for a new conventional loan at a lower rate and refinance the high cost loan. Conclusion You do not have to lose your house if you are about to go into foreclosure or are already in foreclosure. You have multiple options for saving your house and your credit rating. The most important thing to do is to take action immediately and not sit back and wait for the worst to happen. |
