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Here are ten suggestions to avoid
foreclosure, both now and in the future.
1. Don't ignore the problem. The further behind you become, the harder
it will be to reinstate your loan and the more likely that you will lose
your home. If you are behind on your mortgage payments or have received
notice that you are behind in payments, you need to contact your lender
quickly and ask to speak with a loss mitigator. Typically, your lender
will mail you a "loan workout" package. This package contains
information, forms and instructions. If you want to be considered for
assistance you must complete the forms fully and truthfully and return
them to your lender quickly. Your lender will review the complete
package before talking about a solution with you.
2. A smart simultaneous step is to contact a HUD approved local
nonprofit counseling agency that may be aware of programs that could
help you, may have personal knowledge of your lender’s flexibility in
terms of available options, and may know the best person to contact with
your lender. To find one click HUD-approved housing counseling agencies
or call HUD at (800) 569-4287 on weekdays. Time is of the essence, so
don’t let this step slow the process more than a few days.
3. At the same time, find out what your home is worth so you will know
how much equity you have (or if its worth less than the mortgage
balance). There are online home valuation tools on Zillow.com, Trulia,
and several other websites, but an experienced and knowledgeable local
real estate agent’s written market valuation is likely to be more
accurate and will be helpful in discussing options with lenders.
Modifications, forbearance and recasting are all possible if you have
sufficient equity in your home, and if you have sufficient equity,
selling the home if necessary may not be the worst idea if home values
are dropping.
4. Avoid fee based for-profit mortgage prevention companies or
counseling agencies – many are rip-offs that provide few if any
meaningful services for distressed homeowners, and you can get quality
counseling for free. Also be wary of investors who advertise offers of
immediate cash for your home. Many of them are also unethical or
outright crooks, seeking to strip home equity through a variety of
techniques. If any firm claims they can stop your foreclosure
immediately if you sign a document appointing them to act on your
behalf, you may well be signing over the title to your property. Never
sign any legal document without reading and understanding all the terms
and getting professional advice from an attorney or a trusted real
estate professional, or a HUD approved housing counselor.
5. Know your mortgage rights. Find your loan documents and read them so
you know what your lender may do if you can't make your payments. Learn
about the foreclosure laws and timeframes in your state (as every state
is different) by contacting the State Government Housing Office.
6. Foreclosures are expensive for lenders, so they are usually willing
to listen to reasonable ideas that can reduce their potential losses,
such as restructuring the loan at lower rates or accepting a “short
sale” which occurs when the lender agrees to let the owner sell the home
for less than the mortgage balance, and agrees to forgive the shortfall
and not downgrade the homeowners credit. Your willingness to cooperate
is a negotiating tool if your suggestions are likely to be less
expensive than a foreclosure action.
7. Bankruptcy is an option, particularly if your lender is inflexible or
your mortgage is on a second home or a rental property. Bankruptcy
judges can reduce debts and modify interest rates on commercial loans,
second home mortgages, and investment property mortgages when it is in
the best interest of both parties. Unfortunately, they have no such
latitude with the mortgage on your primary residence, but if your
mortgage lender is inflexible, bankruptcy proceedings may be the wisest
choice.
8. Even if you are current on your mortgage payments but have an
adjustable loan, thoroughly review your mortgage documents, even if your
reset date is many months in the future. Check the reset interest rate
or formula for determining the reset rate and any future rate resets,
and see if there are mortgage prepayment penalties.
9. If you think you could have trouble keeping up with the new payments
on an adjustable mortgage, consider refinancing into a fixed rate
mortgage if possible. Some lenders may be willing to forgive all or part
of a prepayment penalty if that payment presents a problem and you
qualify for their fixed rate product.
10. Don’t assume that you are immune to a foreclosure in the future.
Don’t assume that a mortgage lender’s underwriting process will assure
that you’ll not be approved for an unaffordable mortgage in the future.
When lenders discovered that they could package and very profitably sell
risky loans to investors, they became was less focused on responsible
underwriting because they weren’t at risk if they sold the loans. Sound
underwriting practices began to deteriorate, eventually causing the
current mortgage meltdown. This could happen again. In the future you
need to consider the total amount of likely monthly payments, including
taxes and insurance, and be comfortable in your own mind that you can
handle those payments. Adjustable rate loans are risky because you can’t
control the future interest rate at the time they will be adjusted, so
you need to assume the worst (in other words, a substantially higher
index interest rate when they adjust) in deciding whether they will
still be affordable.
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