How to Stop Foreclosure! Home Foreclosure (Help with)
What is Foreclosure?
A loss of job, unforeseen medical expenses, loss of a partner or any other number of disruptions can occur to anyone and affect our ability to manage finances. If this should happen take steps to ensure you protect your home. When mortgage payments are neglected, the lender can foreclose, a legal means by which they can take over possession of your home.
Lenders do not necessarily want to foreclose and will usually work with you to circumvent the process. Don’t let pride stand in the way, contact your lender as soon as you know payments might be late and look for solutions. Never ignore the problem thinking that the next month might be better and never assume that nothing can be done.
The following information is not intended as legal advice. Consult appropriate professionals for legal advice and tax implications.
Ultimately, the only thing that will stop foreclosure proceedings is repayment of the debt, everything else is delay of the proceedings.
Possible Solutions to Temporary Problems
Depending upon your financial situation, your lender may be able to arrange a repayment plan and provide for a temporary reduction or even suspension of payments.
If your mortgage is past due but you can now afford payments, the lender may allow you to catch up by refinancing your mortgage or extending the payment term. Modification may also be possible if you are current but can no longer afford payments at the existing level.
Before exploring new options, have you tried to come to terms with your existing lender? Lenders want the loan to be current, not to have to complete a foreclosure. Can you make up the defaulted amount over a period of months? Can you re-write the note and include the defaulted amount? Can you give the lender a deed-in-lieu of foreclosure and preserve your credit? These are questions you should ask yourself and possibly your lender if you haven’t done so already. They will want to know why the loan is in default and why you think you will be able to make the payments in the future. Temporary financial setbacks that have since been cured are the best candidates for this. Your lender will probably not be inclined to stop foreclosure proceedings if they have reason to believe they will have to start again in 6 months.
Refinancing and New Junior Loans
Basic lending guidelines will require all home loans will total up to less than 75% of the current market value of the property. If you have more equity than that, you should have no difficulty in obtaining a new refinance or 2nd Trust Deed to bring your loan current. Expect higher interest rates and loan fees.
Loans to Get You Current
If you experienced a temporary financial setback that has since been cured and are going to be able to keep the property, first consider family and friends for a loan to get current. It’s much cheaper than hard money loans, but MAKE SURE you will be able to pay them back. You do not want to put them in the position of having to foreclose to get their money back. Hard money loans are typically private investors who will lend money based on equity in the property.
Credit and income are not issues of importance and loan approval is usually a matter of days with funding following shortly. Loan amounts will usually be enough to bring existing loans current, pay the financing costs and put some money in your pocket. Loans will be amortized over 30 years to keep the payments lower and the balance will be due in 2 to 5 years.
You may be able to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage payments current by a specified date. To qualify your loan must be a least 4 months overdue but no more than 12 months delinquent and you must satisfy the condition that you are able to begin making full mortgage payments.
When a partial claim is filed, HUD will pay your lender the amount owing to bring the loan to current status. A Promissory Note must be executed and a lien will be placed on the property until the Note is paid in full.
Selling the property for less than the amount owing on the mortgage will avoid foreclosure. The loan must be at least 2 months delinquent to qualify. As well, you must sell within 3 to 5 months and a new appraisal must show the home meets with HUD program guidelines.
Deed in Lieu of Foreclosure
A last ditch means of avoiding foreclosure is “giving back” your property to the lender. This will be damaging to your credit rating but certainly not to the extent as a foreclosure. The lender may impose some restrictions prior to accepting this option such as attempting to sell the house in a specific time frame. This may not be possible if there are outstanding liens against the property or there are other FHA mortgages in default.
Keeping The Property vs Selling the Property
If your monthly house payment (including property taxes and insurance) does not exceed 40% of your gross monthly income, it should be possible for you to keep the property. If the payment is greater than 40% of gross monthly income, consider selling or transferring the property to avoid negative impacts to your credit. The objectives in order of importance should be:
1. Keeping the property if possible.
2. Don’t give away equity if you can keep it or liquidate and put it in your pocket.
3. Minimize damage to your credit. You will need it later on.
This is a major step that will have lasting impact on credit reports. Seek appropriate legal advice. If the Notice of Default has just been filed on your home, you have sufficient time to explore the options for new loans or selling the property. If the foreclosure sale is going to be held very shortly, bankruptcy is a very common way to delay the sale. When you file bankruptcy, your financial matters fall under the jurisdiction of the courts which could limit your options. SEEK LEGAL ADVICE.
What Can I Do?
- If you run into financial problems, contact your lender at once. Determine if you will be able to afford the amount of money required to prevent foreclosure.
- Consider family and friends for loans to get you current. However, make sure you will be able to repay the debt and never put them in the position of having to foreclose to get their money back.
- Call or write your lender’s Loss Mitigation Department. Be honest and explain the situation. Be prepared to supply them with details of your monthly income and expenses and have bank records on hand. Without sufficient information they will not be able to assist you.
- Stay in your home until you have been assessed. If you abandon your home you may not qualify for assistance.
- Contact a HUD approved counseling agency. They have the resources and expertise to help you and determine which options are best. They may also offer credit counseling and their services are usually free of charge.
- Never sign anything you don’t fully understand and beware of anyone trying to take advantage of your financial situation. Always obtain professional guidance.
The best way to avoid foreclosure is to always have two or three mortgage payments tucked away in a special rainy day savings account.
This paper is intended for informational purposes only. Nothing contained herein constitutes legal, financial or other professional advice. Transmission of these materials is not intended to create, and receipt does not constitute, any relationship of any kind between the provider and the recipient. Some of these points may not apply in your area. Different term and conditions may vary from state to state and province to province. All articles, text and photographic material presented here is for the use and pleasure of the recipient only. Download PDF