Post By Aaron Hamilton
Over the past couple of years, I’ve found that a prevalent belief among American homeowners is the idea that once the foreclosure process has begun it is impossible to stop. Fortunately, this is very rarely true. We all know that foreclosure can seriously affect your credit rating and impair your eligibility for optimal mortgage rates in the future. However, if you know exactly what steps to take and when to take them, it is possible to stop foreclosure and save your home. What you don’t want to do is procrastinate, as the longer you ignore the situation, the fewer options you will limit yourself to.
Preventive Steps
Early intervention on your part is essential. Typically, missing one mortgage payment is not that big of a deal. If you know that you will miss a payment contact your lender in advance as soon as possible. You will need to clearly explain your situation and why making the payment is a problem at that particular time. Be prepared to answer questions concerning your current income and expenditures as they will likely ask you these and other financial information questions. Large retail lenders like Quicken Loans, in most circumstances will extend “forbearance” to a borrower, which is a temporary postponement or reduction in the monthly payment. The borrower will also be subsequently given a future point in time at which they must be up-to-date with all mortgage payments. For example, if you missed your mortgage payment one month, the due date will usually be on the day that the next payment is due.
If you’re likely to miss several payments, again, inform your lender as they may still be willing to extend forbearance on the condition that you make up the missing payments by a future specified date.
If you find yourself currently not able to afford your mortgage payments and do not see the situation changing in the near future, your lender might be willing to modify the terms of your loan to make it affordable. Lenders will often do this by changing a borrower’s amortization schedule to reduce their monthly payments to a more affordable level. For example, if you currently have a 30 year fixed rate mortgage and are unable to afford it, lenders may be willing to modify your loan and extend the term to a 40 year mortgage.
Also, homeowners that have FHA loans, have an additional option. If you are currently four to twelve months in arrears on your mortgage but will be able to make steady payments after settling the overdue ones, you may be eligible for an interest-free loan from the FHA Insurance Fund.
Again, the key in all of these situations is to inform your lender immediately once you know you’re going to have problems making your monthly payments. A lender will be far more receptive to helping you if you are honest and up-front with them about your financial hardship.
What To Do if The Process Has Already Begun
Most state laws require that a lender accept a full repayment of arrears regardless of how far along the foreclosure process is. If your home is already in the stages of foreclosure, taking out a loan may be a good solution, particularly if you have already built up a good amount of equity in your home and have a good credit rating. It is important to note, however, that this is only a tenable solution if you will be financially able to keep up with both the mortgage payments and loan repayments in the future.
If you find yourself no longer able to keep up with your mortgage payments, selling your home before your lender forecloses on it is another solution. You can attempt to sell the home at current market value, or try to arrange a deal for a short sale with your lender. In the case of the latter, your lender will agree to take a loss should you sell the property for less than what is owed to them. Another option is a pre-foreclosure sale. This in effect will suspend the foreclosure process as long as the borrower meets certain criteria and agrees to sell their home within a period of time stipulated by the lender.
Finally, if all else fails up to this point; consider getting a deed-in-lieu of foreclosure. With a deed-in-lieu of foreclosure, you are essentially giving your property to the lender in exchange for them cancelling all existing foreclosure proceedings. This will still negatively affect your credit rating, but to a much lesser degree than foreclosure would.
Related Post:
How to Stop Foreclosure: Ask for the Note
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