Avoiding foreclosure is a simple matter of reacting early on and making the right moves. If you find yourself getting behind on your mortgage payments then chances are that foreclosure is on the way. You will need to get your act together and make a solid plan to stop the foreclosure. This will involve figuring out a budget and your current financial situation. You will also need to contact your lender and get the word out that you may be unable to pay what you owe. Though this situation may seem alarming you can easily get yourself out of troubled waters as long as you keep your cool. By working towards improving your situation you can easily avoid foreclosure and the problems that come with it.
How to avoid foreclosure
Foreclosure is the absolute last resort and there are a number of steps you can take to avoid foreclosure:
- You should first contact your lender and inform them of your situation.
- You will need to have a valid reason for why you cannot pay your mortgage and you will need to be honest about it.
- Your lender can create a work-out package which will enable you to pay back what you owe but this can come with a number of difficult clauses. It is important that you work closely with your lender to come up with a feasible solution.
- Even though the lender doesn’t want to take your house, these re-payment plans fail more often that they succeed. Don’t commit to something that’s not feasible.
Two things to consider
- Current financial situation — It is extremely important that you analyze your financial situation and understand exactly what you have. This will give you a reality check and help you make the right decisions to avoid foreclosure.
- Advice from your lender — You should contact your lender immediately to know how you can better deal with the situation. They may be able to structure a deal that will allow you to stop foreclosure.
Two things that you can do to avoid foreclosure
- A short sale — With your lender’s approval, a short sale will allow you to sell your home for a deeply discounted rate. The proceeds will go to excuse all of the debt you owe on your house. You will not be able to profit from this deal, but you will save yourself from foreclosure. A foreclosure will affect you in many negative ways for years to come. You will eventually want to buy another house, and a foreclosure would make that very difficult. A short sale benefits both the borrow and the lender. It benefits the borrow by preventing major damage to their credit report. An entry in the credit report mentioning “settling for an amount less than dues” is unflattering, but definitely a better option than the mention of a foreclosure on the report. It also saves the borrower from paying out monthly fees which he or she cannot afford, causing constant stress and trauma on receiving intimidating communications from the lenders threatening foreclosure. A short sales benefits the lender because lenders are in the business of finance and mortgage loans – not in real estate. If they keep acquiring thousands of bad loan properties and houses, they will sink and eventually be put out of business. The lenders are already burdened with a lot of unsold properties in inventory that are constantly incurring expenses at an alarming rate. They cannot even resolve the loans fast enough. Their liquidity and cash flow also improves if they can monetize their debt and properties under their control, which has been blocked and tied up. Though the lenders also take a hit in their profitability and bottom-line, it is a better option for them as well as the borrower.
- A loan modification — Loan modification programs offered by your lender(s) can allow you to stop foreclosure and give you the opportunity to ward off the prospects of a looming foreclosure and gives breathing space and time to tackle the payment dues on your mortgage loan. It differs from a refinance option in the sense that the same mortgage loan on which you are behind is renegotiated to provide some comfort and ease in repaying the dues. Loan modifications should only be considered if you want to keep your home and you are sure you can afford to keep it. If you decide you cant afford your home then a short sale may be your best option. If you decide on pursuing a loan modification please be aware that the success rate on loan modifications is relatively small and I would recommend that you work directly with your lender(s) and not a third party. In the last few years numerous loan modification companies and services been started that are more concerned with them making a buck (by charging you), than actually helping you out of your financial situation. Your actual lender(s) will work directly with you, or refer you to a company that they work closely with.
Don’t take it personal
Many people bought homes when the economy was strong and housing prices were high. Have you found that you owe more on your home than it’s worth? Are you struggling to make your monthly mortgage payments? Do you just want to be get rid of the burden that your house has become, but don’t want to destroy your credit? Then you may want to avoid foreclosure through a short sale.
Please contact me if you would like more information on avoiding foreclosure through a short sale.