By mid-2018, there were 362,275 U.S. foreclosure filings in the United States. While this was down 15% from the same time in 2017, that’s still a discouraging number of Americans losing their homes.
Millions of Americans will lose their homes within the next few years. If you are having difficulty with your mortgage payments, take some time to learn how to avoid foreclosure if at all possible.
Fast action on your part can help you save your home and your credit score. This article does NOT show you how to stop foreclosure at the last minute; instead, it shows you how to be proactive before it’s too late.
Let’s take a look.
Open and Respond to Communication From Your Lender
You may dread those envelopes from the lender. Though, the first notices contain information about preventing foreclosure as you weather your financial difficulties.
If you don’t respond, mail that comes later will contain notices of pending legal action. Not responding to this communication will only compound the problem.
Understand Your Mortgage Rights and Options
If possible foreclosure is a concern, find your loan documentation. Read through so you know and understand what the lender can and can’t do if you can’t make your payments.
Also, take some time to learn the foreclosure laws for your state. Every state has different regulations and timeframes. You can find these by reaching out to the State Government Housing Office.
You can also bone up on some of the foreclosure prevention options, which are also known as loss mitigation options. You can find that information on the Federal Housing Administration’s (FHA) website.
Stay Away From Foreclosure Prevention Companies
There are too many for-profit companies that negotiate with your lender for you. Many of these companies are legitimate, others are not. Consider whether you want to spend your already limited funds on fees to these companies.
Some of these companies charge fees as high as two-to-three months of your mortgage payment. The same information and services these companies offer are already available to you for free.
You can contact your lender or a HUD-approved housing counselor at no cost to you.
Watch Out for Scam Artists
People facing foreclosure are going through a rough patch. That makes them targets for unscrupulous people claiming to help. Some unwitting homeowners have signed over their property, essentially becoming renters to scam artists.
If any firm or individual claims they can stop the foreclosure immediately, think twice. If you sign a document giving them permission to act on your behalf, you may be signing over your property title.
Never sign anything without getting a professional second opinion. Remember that a HUD-approved housing counselor is available for free. Other professionals are a real estate attorney or a trusted realtor.
Don’t Put It Off
If you are facing financial challenges, don’t just wait for the bank to begin foreclosure proceedings. Research your options.
A foreclosure will damage your credit, making it more difficult to buy another home. If you want to rent, a low credit score makes it more difficult to be approved for a lease as well.
Also, if you sell your home to avoid foreclosure, the profits from the sale may not cover the unpaid balance of your loan. In that case, the lender could sue you for the remainder.
Work With Your Lender
The further behind you are in your mortgage payments, the harder it is to reinstate your loan. Thus, ignoring the problem increases the likelihood that you could lose your home.
Mortgage Lenders Don’t Want Your House
Lenders benefit as much as you do from borrowers making payments on a loan. Lenders have options in place to help borrowers like you through difficult times.
You should contact your lender before you miss any payments. Even if you have missed one or some payments, contact your mortgage servicer or lender. The mortgage servicer is the company who processes your monthly payments.
If you call sooner than later, your lender may offer a solution that works for both of you. It’s easier to find a workable solution if you aren’t too far behind in your payments.
Possible Solutions From Your Lender
Your lender may allow you to make partial payments for a few months. You will have to make up the difference later. Your lender may also agree to accept late payments, or even revise the terms of your loan.
Forbearance means you can make a reduced payment (or perhaps no payment), for a period that you and the lender agree upon. Typically, you will make up the difference down the line.
Lenders go with this option if you can show that you will receive funds within the time period. For example, you may receive a large tax refund, work bonus, or some other type of funding.
For a loan reinstatement, you agree to catch up on your reduced or missed payments by a specified date.
For a loan modification, your lender alters the terms or your loan so that you can afford the payments. The lender may even add your missed payments to your loan balance.
They may also extend the term of the loan. In the long run, you will have lower payments but pay more interest. Finally, you and the lender may choose to convert the loan from an adjustable rate to a fixed rate mortgage.
How to Avoid Foreclosure with Government Help
You may be able to refinance your loan through the U.S. government’s Making Home Affordable (MHA) program. The MHA Program helps homeowners avoid foreclosure by way of foreclosure assistance grants.
By refinancing, you can lower your monthly mortgage payment. You can also get a more stable loan with current lower rates.
Also, should you decide you no longer want to own the home, the MHA can help you do that without falling into foreclosure. This includes options for homeowners who are unemployed as well as those who owe more than the home is worth.
The following are some option with the MHSA program that allows you to refinance or modify your loan terms. The result is lower monthly payments through loans to stop foreclosure.
The Home Affordable Modification Program (HAMP)
To make your payments more affordable, HAMP lowers them to 31 percent of your gross (pre-tax) monthly income. The average HAMP modification works out to a 40 percent drop in your monthly mortgage payment.
About 18% of HAMP homeowners see their payments reduced by $1,000 or more.
Principal Reduction Alternative (PRA)
The PRA helps homeowners whose homes are worth much less than they owe. It does so by encouraging investors and mortgage servicers to lower the amount you owe on your home.
Second Lien Modification Program (2MP)
If your lender permanently modified your first mortgage under HAMP SM, and you have a second mortgage on that same property, you may qualify for a principal reduction or modification on your second mortgage under 2MP.
Also, if you have a home equity loan (HELOC) or another second lien, the 2MP may be a solution for you.
Home Affordable Refinance Program (HARP)
HARP assists homeowners who are current on their mortgage but cannot refinance because the value of the home has declined. HARP helps you refinance into an affordable, stable mortgage.
Also, HARP can help you if you are current on your payments but anticipate having difficulty paying your Freddie Mac or Fannie Mae mortgage in the near future.
Under HARP, you may be able to refinance into a fixed-rate, low-interest loan. Note, though, that HARP will end on December 31, 2018.
Filing for Bankruptcy
Filing for bankruptcy releases you from your mortgage, which may help you stay in your home. When you file for bankruptcy, you stop foreclosure by what’s called an “automatic stay.”
The lender can’t reopen foreclosure proceeding until your bankruptcy case closes or the lender gets permission from the court to proceed. Court permission is called “lifting the stay.”
Sell Your Home
When is it too late to stop foreclosure? It may be that you can’t afford the home you own. If the above option can’t or didn’t help, you will probably lose your house to foreclosure.
Rather than wait for your lender to start foreclosure proceedings, you may be able to sell your house yourself.
If your home’s market value is high enough (that is, if you’re not underwater on your mortgage), the sale proceeds would be enough to settle your mortgage. Thus, selling the home stops the foreclosure process.
Contact Your Lender
If you decide to sell your home, contact your lender. They may be willing to allow you to stop making payments until you sell the house.
When it works out, the proceeds from the sale cover your mortgage and your selling costs. If they won’t, you can ask your lender for a “short sale.”
A short sale means the lender accepts the sale proceeds even if they amount to less than what you owe. Sometimes a lender will try to collect the remainder of what you owe.
Before proceeding with a short sale, contact a real estate agent or attorney experienced with short sales.
Handing the Deed Over
In the event you can’t sell your house, your lender may agree to take your deed and cancel the remainder of what you owe. This is a deed in lieu of foreclosure.
The bank can sell your house as they would have if they foreclosed on it. Though, they don’t report it as a foreclosure to the credit agencies. Thus, you keep from taking that hit on your credit rating.
Take the Next Steps
Everyone faces difficult times at some point. Just remember that burying your head in the sand is not how to avoid foreclosure. Doing nothing only makes the problem worse.
Consider any of the options in this article rather than waiting for the worst. If you have any questions about selling your home, please contact us.