AVOIDING. Foreclosure. Learn What Steps You Can Take to Save Your Home

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Anis Quinn
8 years ago
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1 AVOIDING Foreclosure Learn What Steps You Can Take to Save Your Home

2 Don t Give Up Until You ve Explored Every Option Without a doubt, foreclosure is one of the scariest words in the financial dictionary. While falling behind on credit card debt payments and other bills can be scary, falling behind on your mortgage can be downright terrifying. Luckily, there are plenty of options that can give you hope to save your home and avoid the heartbreak of foreclosure! This booklet provides strategies to help get you back on track, as well as outlining providing a basic outline of programs available to help you save your home. We ll also let you know what you can expect during the foreclosure process, so you can be more accurate in determining how long you have to avoid a foreclosure judgment. 1

3 How Long Do I Have? The foreclosure process varies from state to state so you ll have more or less time, depending on where you live. You can find specific state foreclosure law at com or talk to a consumer law attorney in your local area. Here is a general guideline of what you can expect leading up to the start of the foreclosure process, so you can determine where you are: If you don t make a mortgage payment by the 15th day after your due date, your lender assesses a late fee. This is typically about 4% of the loan amount. If you don t pay by the due date of the second month, your lender will typically attempt to contact you by phone or by a letter to see what going on. If you miss a few payments, most lenders will start the foreclosure process. If the lender still can t get in contact with you or you can t reach an agreement to get you back on track, they may send a Notice of Acceleration. Once this letter arrives, the lender is much less likely to work with you to arrange payment to get you back on track, so don t avoid talking to your lender if you re having trouble! After the foreclosure process begins in earnest, some state may still give you an opportunity to redeem the property by paying the amount due plus costs to cover a certain period after foreclosure. Once a foreclosure decision is reached, in some states the judge may allow the lender to collect a deficiency judgment, which requires the homeowner to pay the difference between the debt still owed on the mortgage and the amount the home was sold for. The foreclosure will be listed on your credit report as a penalty for 7 years from the date of foreclosure. 2

4 What are my options? There are a number of strategies you can use to help you minimize the harsh financial difficulties caused by foreclosure. In addition, the recent collapse of the real estate market has led to the formation of several government programs intended to help people save their homes. Strategies to Save Your Home Explore the following programs to see if one can help save your home: Mortgage Negotiation. Work with your lender to refinance your mortgage at a lower interest rate, adjust your principal if your mortgage is more than your home is worth, or to create a payment schedule that would allow you to pay less each month for a period of time until you can get your finances under control. This option may be limited if you have already begun to miss payments or started paying late. Making Home Affordable (MHA) program. This is a government program created to provide relief to homeowners who were roped into mortgages they can t afford and/or are paying more than their home is actually worth. Hardest Hit Fund. This Federal program provides relief to people living in areas hardest hit by the real estate market collapse and economic downturn. In some cases, they can even help you cover mortgage payments if you re unemployed or work with you to successfully get out of your mortgage so you can start fresh. Contact a HUD-certified housing counselor in your local area to learn about the options available where you live. The counselor will also be able to help take an assessment of your situation and offer advice on how to you save your home. 3

5 Strategies to Sell Your Home If you can t save your home, the next best option is to sell it before your lender forecloses. Here are the options you have in selling: Pre-foreclosure sale. This is a particularly good option to use if you have any equity left in your home (i.e. the value of the property is more than the remaining debt on your mortgage). It s recommended if your equity will cover the realtor fee (usually about 6% of the sale price) to use a realtor, since your home is more likely to get sold quickly and often at a higher sale price. Short sale. A short sale is where a real estate investor provides documentation to your lender showing you are in financial hardship and will end up in foreclosure. Then they offer to buy the home for less that you owe. This allows the lender to recoup at least some of their money, so it s more attractive to lenders than foreclosure, but it will still appear as a negative mark on your credit report. Make sure any short sale is handled and documented properly to avoid the chance your lender can enter a deficiency judgment against you to recoup the rest of their money. Equity skimming and leasebacks. With this strategy, an individual offers to help you catch up on your payments by taking them over for a period of time while you rent you home from them. The contract typically includes very strict provisions stating if you re late or miss even one payment, your house is no longer yours. In other leasebacks, you actually sign over your home with the opportunity to buy it back many times under terms you may never be able to afford. Only use this sale option with extreme caution and make sure to consult a real estate attorney to avoid getting 4

6 scammed. Quitclaims. A quitclaim is where you sign a legal document turning over ownership rights of your property to someone else. This does not get you off the hook with the lender, but simply leaves you with no rights to the property. Do not quitclaim your property without consulting a real estate attorney and allowing them to review your documentation carefully. Deed-in-Lieu A final option is to agree to a deed in lieu of foreclosure, where you basically give the property back to the lender. This minimizes your foreclosure expenses, but will appear as a penalty on your credit report. 5

7 Using Bankruptcy to Avoid Foreclosure In some states, in some cases, you can use to delay or stop the foreclosure process on your home. A bankruptcy filing stays on your credit report for 7-10 years (7 for Chapter 13, 10 for Chapter 7) and the penalties to your credit report are at least as bad as what you get with foreclosure, but you get to keep your home or at least buy more time to work to keep your home. Is Foreclosure the End of My Credit World? Without any sugarcoating, yes extremely harsh penalties on your credit report are really bad for your credit. But penalties don t last forever. Federal law prohibits foreclosure penalties from being listed on your credit report for any longer than 7 years, so you can rent property, get your finances back on track, and consider purchasing a home once the seven year period is over. In fact, you may even be able to get your credit back where it needs to be and purchase a home sooner than 7 years. The weight of credit penalties decreases over time and is factored in with the rest of your credit history with more recent activity holding more weight. If you foreclose, then use the relief provided in not having your mortgage payment to pay off your other debts on time and even as quickly as possible, you may see you credit rating recover much sooner. 6

H O W T O A V O I D F O R E C L O S U R E F O R E C L O S U R E

U.S. Department of Housing and Urban Development H O W T O A V O I D F O R E C L O S U R E F O R E C L O S U R E This booklet explains how property owners can avoid losing their homes because of delinquent