Home Loan Advice & Articles

Do's and don'ts for avoiding foreclosure

Struggling to keep up with your mortgage payments? Worrying about the possibility of foreclosure? Here are seven simple dos and don’ts that can help prevent you from losing your home.

One out of every 134 U.S. homes went into foreclosure during the first half of 2007, according to the RealtyTrac Midyear 2007 U.S. Foreclosure Market Report. That’s a 55 percent increase over the first six months of 2006 and cause for some serious concern. But it also raises the question of whether many of these foreclosures could have been avoided. And, if so, how? In many cases, the answer is simpler than you’d think.

If you’ve fallen behind on your mortgage payments and are concerned about the possibility of foreclosure, the time to take action is now! A few preventive steps can help save your home. Just be sure to avoid pitfalls that can make the situation worse. Here’s a list of dos and don’ts to help fend off foreclosure:

1. Face up to your problem

DO: Admit to yourself that you need to take action.
The biggest mistake you can make is not facing up to the fact that you have mortgage problems. If you’ve fallen behind on your payments (or think you are going to fall behind), you need to create a plan of action to resolve the issue as soon as possible. The longer you ignore your problems, the greater the likelihood you’ll end up losing your home.

DON’T: Ignore those notices you receive in the mail.
The notices you receive in the mail from your lender may offer information about foreclosure prevention options or pending legal options. The sooner you respond, the better.

2. Contact your lender

DO: Contact your lender right away.
Your lender doesn’t want to end up owning your home. Foreclosures can be expensive and it’s in your lender’s best interest to work out a deal. You may be able to negotiate a “forbearance” (a period during which you will be allowed to delay payments until you can get back on track). Or your lender may be willing to set up a repayment plan whereby you can gradually make up the shortfall you owe over a specific number of months.

DON’T: Turn to a firm that promises “foreclosure prevention.”
You don’t need to pay an outside company for help in preventing foreclosure. Be especially suspicious of any firm that promises aid in exchange for your signing over the title to your property. You could end up avoiding foreclosure but still losing your home. Don’t sign any legal form without getting professional help.

3. Read through your mortgage documents

DO: Examine your loan documents.
It’s important to read through your mortgage papers to find out what will happen if you fall behind on your payments. The documentation will stipulate any potential penalty fees you could end up having to pay.

DON’T: Assume you’re protected for a specific time period.
Foreclosure laws and the amount of time you have between defaulting on your mortgage and the start of foreclosure proceedings varies between states. Contact your State Government Housing Office to find out the regulations in your region.

4. Apply for refinancing

DO: Consider mortgage refinancing.
Before you begin missing payments, ask your lender if you can refinance your mortgage with a different type of loan or extend your mortgage term in order to lower your monthly payments. Also, shop around to see what refinancing offers you may be able to obtain from other lenders.

DON’T: Turn to a predatory lender.
Beware of any refinancing offers that sound too good to be true. Predatory lenders sometimes offer mortgage deals that are good for only a short period of time. Switching to such a loan could make your problems worse in the long term.

5. Sell off other assets

DO: Consider liquidating certain assets.
If you have assets, such as a second car that you can sell for cash, consider liquidating them to reinstate your mortgage.

DON’T: Rush to sell assets before you crunch the numbers.
Be careful not to sell assets off quickly at below-market prices before you’ve discussed other options with your lender or confirmed that the proceeds from those assets will be sufficient to cover your needs. Otherwise, you could end up regretting your actions and still end up losing your home.

6. Request a short sale

DO: Ask your lender about the possibility of a “short sale.”
If you’re truly unable to get your mortgage back on track, ask your lender if you can be released from your loan by selling your home via a “short sale.” This involves selling your home quickly before foreclosure. And, even if your home has gone down in value and the proceeds are insufficient to repay your entire debt, your lender may agree to take a loss on your mortgage in order to avoid the costs and delays of foreclosure

DON’T: Neglect to ask if there are any conditions attached.
Your lender may only agree to a short sale on the condition that you’re still responsible for paying back all of the money you owe on your mortgage. In that case, you’ll still end up with the financial hardship of having to make up any potential deficiency not covered from the sale of the home.

7. Offer to sign over the deed

DO: Ask your lender if you can sign over your deed in lieu of foreclosure.
Your lender may agree to accept the deed to your home in order to avoid foreclosure. This can be much faster than going through the foreclosure process and therefore enable you to get on with your life sooner. Be sure to ask if, in exchange for the deed, your lender will be willing to cancel all of your outstanding debt.

DON’T: Wait for your home to be sold at public auction.
At the end of the pre-foreclosure period, your property may be put up for public auction and possibly end up selling for less than market value. If the sale doesn’t provide enough to pay off your mortgage and cover the costs of foreclosure, you may still be held financially responsible for making up the difference.

Digging your way back out of debt is never easy. But asking your lender to help you to structure a repayment plan to avoid foreclosure is well worthwhile. It can mean the difference between saving your home and losing it.

 

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