While the housing market may be bottoming out at last, thousands of foreclosures are continuing to put people out of their homes. The situation is bad for almost everyone: homeowners who are losing their houses; lenders who must take back the foreclosures and then try to resell them in a tight market; and neighbors who may see their own property values drop in the wake of surrounding defaults.
Lenders often do want to help borrowers avoid foreclosure, and for many homeowners who are facing the ordeal, help is possible.
The worst thing a homeowner facing foreclosure can do is to ignore the situation. The more delinquent payments accrue, the harder it is find a solution, and the more likely it is that the homeowner will lose the house. The borrower should call the lender immediately with information about his or her economic situation, and emphasize a desire to keep the home.
The borrower should ask the lender’s loss mitigation department for a budget and financial statement form, and fill it out honestly. It will help both parties determine whether staying in the home is feasible.
It is important for the borrower to document every conversation with the lender.
The homeowner should write down all monthly income and expenses, and look for every possible way to cut back. Some places to trim might be cell phones, cable TV and dining out. Having everything on paper will help the homeowner see exactly where money is going each month, and where savings are possible. Except for food and necessary medical care, the mortgage payment should take priority over everything else.
The homeowner should then take the new budget plan to show the lender. It will help demonstrate that he or she is serious about making every effort possible to keep the home
Saving the house
The lender will first try to determine whether the homeowner’s financial problem is temporary or long-term. If it is a short-term problem, such as an injury or illness that keeps him or her from work temporarily, the bank may offer a revised plan with smaller payments now, and larger amounts after the problem is resolved.
If the difficulty is long-term, as is often the case in today’s market when an interest rate resets at a higher level, the bank may be willing to take a number of actions to help.
The lender may choose to modify the loan on a permanent basis. This may involve reducing the interest rate, adding delinquent payments to the end of the loan, or re-amatorizing (changing the length of the payback period) the loan to make the payments smaller.
Some borrowers may have the resources to make a reasonable monthly mortgage installment, but have fallen so far behind that it is unlikely they will ever be able to make up the payments already missed. Sometimes, a lender may provide a separate loan at low or no interest specifically to allow a borrower to catch up.
Don’t fall for scams
Some companies may claim they can stop a foreclosure if the homeowner signs a document appointing the firm to act in his or her behalf. But the homeowner may in fact be signing over the title to the property, and become a renter in his or her own home. A homeowner should never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or an HUD approved housing counselor.
In some cases, there simply may not be a workable way for an owner to keep the home.
The bank may then agree to a pre-foreclosure, or short sale. The owner sells the home at market value, even if it is less than the amount owed on the loan. This allows the bank to cut its losses, and the borrower keeps a foreclosure off his or her credit report.
Another possible course of action is deed in lieu of foreclosure. The homeowner simply hands the deed – and the keys – to the home over to the bank. This leaves the homeowner with a default – but not a foreclosure – on his or her credit report.
Avoid future mistakes
Many people run into problems with mortgages because they don’t understand the responsibilities of homeownership or how to manage their money. Every homeowner should have a budget plan that works for his or her specific situation. Seeking advice from a counselor with the U.S. Department of Housing and Urban Development, or other real estate professional, may help avoid future problems.
Things to do:• Don’t ignore the problem. • Contact your lender as soon as you realize you have a problem. • Open and respond all mail from your lender. • Know your mortgage rights. • Understand foreclosure prevention options. • Contact a HUD-approved housing counselor • Prioritize your spending. • Use other assets, such as jewelry or a second car, to help reinstate the loan. • Avoid foreclosure prevention companies that charge for information and services a lender or a HUD approved housing counselor will provide for free. • Beware of scams.