Stop Foreclosure and Save Your Home

By educating yourself and finding out what your options are to save your home from foreclosure, you can stop the foreclosure process if you start early enough.

The biggest mistake that many homeowners have made is waiting too long to seek foreclosure help.

The majority of foreclosures could be stopped if homeowners communicated early with their lenders and documented all their communications in writing.

options-to-stop-foreclosureIf you think you are going to be in default or you are already behind with your mortgage payments, contact your lender immediately and explain your financial situation. Ask them what options are available to stop the impending foreclosure proceedings against you.

You may also want to consult with someone proficient in real estate foreclosures such as a foreclosure defense attorney, a HUD certified housing counselor, a mortgage broker or a mortgage modification company.

If you’ve received a notice of default, you are not alone.  Millions of Americans have been served notices of default, and the country is in the midst of a foreclosure epidemic. There are foreclosure alternatives available, even at this stage of the foreclosure process.

If you want to avoid foreclosure, help is available. But you will need to get into action and seek out a solution. Contact your loan servicer to discuss your options.  If you avoid contact, your servicer and lender will have no choice but to believe that you do not want to avoid foreclosure.

Foreclosure is the least desirable option for lenders and borrowers alike. In a foreclosure, the borrower loses the home, and the negative impact to his or her credit rating will be significant. Lenders lose an estimated $40,000 to $80,000 on every foreclosed property. Since most foreclosed properties are vacant and subject to vandalism and disrepair, they can lower the value of homes in the surrounding neighborhoods. Right now, unprecedented efforts are underway to reduce the number of homes going into foreclosure. These efforts include the Obama Affordability Plan and state plans. There are also options for at-risk homeowners who need foreclosure help.

Foreclosure Process

Foreclosure processes vary from state to state. They usually begin after three to six months of missed payments. At that point, a notice of default is filed with the county, putting the homeowner on notice that foreclosure proceedings have started. If the loan isn’t brought current within three months, a foreclosure sale date is scheduled. The homeowner will receive a notice of sale, and that same notice will be posted on the property. The property can be sold at auction or it may become what’s called “real estate owned” (REO), which means that the lender now owns the property. When the lender does sell the home, the sales price is typically less than the loan amount.

Options to Stop Foreclosure

The following are the various options that may be available to you in order to stop the foreclosure process on your home:

Refinance your existing mortgage

With the new Obama foreclosure prevention plan allowing homeowners to refinance their primary residences with as little as 5% equity in their home, more homeowners will qualify to refinance now and be able to get lower monthly mortgage payments avoiding foreclosure. Only loans backed by Fannie Mae and Freddie Mac are eligible and the loan must be a conforming loan $417,000 or under. Prior to the new plan, homeowners needed at least 20% equity. You must be current on our loan though. The plan does not pertain to investment properties or jumbo loans over the $417,000 limit.

Short-Fi: Short for a “short refinance,” a short-fi is a relatively new option where the current lender accepts a lower payoff amount so that the borrower can refinance into a new loan. This option requires cooperation from two lenders, first from the lender who will be taking a loss on the current mortgage, and second from the lender who will be granting the new mortgage. A short-fi can be an option for those who are struggling to make payments that are increasing.

For those who cannot qualify for a refinance, loan modification or short-fi, starting over may be the best option. For those who decide not to stay in their current homes, a foreclosure or short sale are viable options.

Mortgage Modification

Having your lender modify your loan can reduce your interest rate at least temporarily, and possibly even permanently, giving you time to catch up on missed payments. In some cases, a lender will modify your loan to reduce the amount of your principal.

Ask your lender if you qualify for a mortgage modification if you do not qualify for a refinance. A mortgage modification is different from refinancing as it is a modification of your existing loan and a not a new loan. Generally the terms are extended, the interest rate is lowered, sometimes debt is forgiven or the outstanding amount in arrears is applied to the back end of the loan. Again you must show income that you can pay the new mortgage so if you are not working or not in a position to show sufficient income, you will not qualify for a loan modification or a refinance.

Deed-in-Lieu of Foreclosure

A deed in lieu of foreclosure is simply where you sign a deed back to the lender and hand them the keys to the house walking away without having to pay off your mortgage. The deed in lieu of foreclosure is when a borrower voluntarily surrenders a property, avoiding a lengthy and expensive repossession. It satisfies the unpaid loan that’s in default. The deed in lieu of foreclosure is less damaging to the borrower’s credit rating and can be less stressful than a regular foreclosure. Both parties must enter into a deed in lieu of foreclosure voluntarily.

Selling Your Home

If you do have much equity, you may want to sell your home and downscale to something that is more affordable or just rent for awhile until your financial situation improves. If you have lost your job or your hours have been cut, or if you are facing a divorce, illness or death in the family, selling your home may be the best suitable option for you. Consult a Realtor and have them market your home and help you find the right buyer. In today’s market, you must price your home at market or slightly under to sell it because there is so much competition from other distressed properties, such as short sales and bank owned foreclosures (REO’s).

Short Sale

Most homeowners at risk of foreclosure have tried to qualify for a loan modification or have tried refinancing, but were not able to qualify. For these homeowners, a short sale may be a good alternative.

A short sale is when you ask the lender to take a reduced amount on your mortgage and approve the sale at a lesser amount than you owe on the mortgage to a buyer who is willing to purchase the home.  Although this results in a loss to the lender, the lender essentially agrees to “call it even.” In other words, once a buyer has made an offer the bank finds acceptable, your mortgage debt is considered paid once the transaction is complete.

The short sale process can take anywhere from 30 days to 60 days or longer. You will want to have a Realtor list your property and help you find the right buyer. However, an attorney, title company or short sale company should negotiate the short sale with your lender. The risk is that the bank will now approve the sale and your home could go to foreclosure if you do not make your mortgage payments while you are waiting for approval.

Loan Rescission

If you suspect that you are a victim of predatory loan practices, you may want to seek the advice of a forensic loan specialist to review your loan. Most real estate foreclosure defense attorneys can perform this review for you and let you know if you have legal grounds to rescind your loan. You have three years from the time you discover the predatory loan practices in which to file a legal action to rescind the loan.

Reinstatement

Any time during a foreclosure process, the homeowner can pay the defaulted amount including any fees and costs and the loan can be reinstated. As a last resort you may need to file bankruptcy. Certain states protect primary residences and other personal assets from bankruptcy and you may be able to keep your home and your car and pension plan. However, you will need to consult with a bankruptcy attorney as the bankruptcy laws are complicated.

Obama Homeowner Affordability and Stability Plan

If you’re a homeowner and you’re worried about how to pay your mortgage, don’t despair. You have options.The lending community is on your side, working with state and federal agencies to help homeowners hang on. The Obama Homeowner Affordability and Stability Plan has the potential to help 9 million households hold on to their homes. State governments are also taking action. With $75 billion dollars set aside to help struggling homeowners, it’s never been more possible to save your home. You’ll have to start by contacting your lender and asking whether you qualify for one of these home-saving options.

Getting out of your old loan and into a new one can relieve you from the instability of an adjustable mortgage, putting you into a low-rate fixed mortgage. Refinancing is an option even for those who owe more than their home is worth. Recent changes may allow refinancing up to 105 percent of your home’s current market value. If you qualify, fixed rates are at all-time lows. Mortgages can be extended to as long as 40 years to keep payments as low as possible.

Be Proactive and Act Fast

For those who cannot qualify for a refinance, loan modification or short-fi, starting over may be the best option. For those who decide not to stay in their current homes, a foreclosure or short sale are viable options.

The best way to handle the difficult challenge of unaffordable mortgage payments is to get into action. This is the best way to protect your credit score and access the best solution before any potential damage has the chance to occur. Remember, your credit score is important. It may not feel like it when you’re struggling to make your mortgage payments, but your credit score will often determine how favorable the terms of your solution will be. In addition, your credit score can impact other financial areas, such as your credit card rates or your ability to get an auto loan.

As a borrower and homeowner, you have a tremendous amount of power in your hands. Start by talking with your lender or mortgage servicer, the company that sends you your monthly statements and processes your payments. You can also work through Mortgage Outreach services to find a solution.

Before you call, figure out how much you can afford. Also, gather the information you’ll need, like proof of income, bank statements and tax returns. Most importantly, be patient and persistent. This is an unprecedented time for lenders and borrowers alike. Banks and mortgage servicers are overwhelmed with callers who are in the same situation that you’re in, so the process may be frustrating at times.

Remember, what you do now will affect your financial future. Your actions today could save your home.

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