Home Buying
Avoid Foreclosure
Your Options If You Are Behind On Your Mortgage:
Negotiate With Your Lender
Lenders don’t want to foreclose on homes. At the same time, they don’t want to waste time and money on risky borrowers who are chronically late with payments — and who may not be taking good care of the home they may have to later take back and sell.
Respond to your lender’s letters immediately by calling or writing to the lender’s Collection Mitigation Department. Explain your situation and be prepared to provide financial information, such as your monthly income and expenses. Without this information, they may not be able to help.
Stay in your home for now as you may not qualify for assistance if you abandon your property
Depending on the kind of mortgage you have, and your situation, you may be eligible for:
- • Get a Second Mortage. This is the best option for 90% of the
foreclosures.
• Deed-in-lieu of foreclosure. This enables you to voluntarily "give back" your property to the lender. This won't save your house, but it is not as damaging to your credit rating as a foreclosure.
• Special Forbearance. Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments.
• Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan.
• Pre-foreclosure sale. You could avoid foreclosure by selling your property for an amount more than the amount necessary to pay off your mortgage loan.
Pre-Foreclosure Sale
If your problems aren’t temporary, you may need to sell your home. Foreclosure will result in the bank taking possession of your home and you will be left with nothing. To avoid that, take action before it happens.
If you do have enough equity in your home to be able to afford to pay a real estate professional’s fee (usually 6% of the sales price, sometimes lower), it’s a good idea to interview three real estate professionals and let them handle the sale for you. Statistics show that homes sold by professionals sell faster than ones where the owner is making the sale.
Make sure you get any agreements in writing from them as to what they will do to market your home. And don’t necessarily go with the agent who tells you she can sell your home for top dollar. Choose the one who you believe will do the most to help your home sell quickly at a fair price.
If you’re going to go this route, talk with your lender and let them know that you have put the home up for sale. Ask if they will hold off on their foreclosure proceedings longer since you have the house listed.
Short Sales
You’ve probably seen the signs or ads in the newspaper: “We buy homes for cash, any condition!” These ads are usually placed by real estate investors looking for bargain homes. If you’ve borrowed on your home recently, you may not have a lot of equity. But an experienced real estate investor may still be able to buy your home and give you enough cash to cover your moving expenses. They do this through a “short sale.”
In a short sale, the buyer will prepare documentation showing the lender that you are in financial hardship and will end up in foreclosure anyway. They will then offer to buy the home for less than you owe on it.
Let’s say, for example, your home is worth $75,000 and you owe $60,000 on your first mortgage and $10,000 on the second for a total of $70,000. The buyer may convince the first mortgage lender to settle for $45,000 and the second lender (who may get nothing in a foreclosure or bankruptcy) to settle for $3,000. They may even pay you $500 or so to cover your moving expenses.
A short sale will help you avoid foreclosure, but it will still appear on your credit report as paid for less than the total amount and that will be a negative mark. On the other hand, if the documents are properly drawn up, you won’t risk a deficiency judgment if the home was sold and didn’t bring in enough to pay the lenders.
To make sure you are protected, ask the seller if they will pay to have your documents reviewed by an attorney of your choice.
