Steps to Avoid Foreclosure
By Ric EdelmanFrom Inside Personal Finance
Foreclosures are setting records; what to do if you are about to lose your home.
Mortgage delinquency rates set a record for the first quarter of 2007, according to Equifax. The Center for Responsible Lending predicts that two million more subprime borrowers will lose their homes by the end of 2009. Might you or a family member be among those who lose their homes?
If you don’t pay your monthly mortgage payments, the mortgage company will eventually foreclose, and you will be evicted. The foreclosure becomes part of your credit report and will hinder your ability to borrow. Although the foreclosure should come off of your credit report in seven years, you may have to disclose it to prospective lenders for the rest of your life. So let’s see how you can stop this problem from occurring.
Q: What happens when I miss my mortgage payments?
If your lender repossesses your home -- foreclosure -- you must move out of your house. If your property is worth less than the amount you owe, the lender may seek a deficiency judgment against you.
Q: What should I do if I can’t pay?
Never ignore letters from your lender. If you can’t make your payment, call or write to your lender’s Loss Mitigation Department without delay. Keep accurate records of every contact that you send or receive (date, detailed notes about what is discussed, and the name of the person with whom you spoke).
Stay in your home for now. You may not qualify for assistance if you abandon your property. Explain your situation. Be prepared to provide financial information, such as your monthly income and expenses. Without this information, the lender may not be able to help you. Most lenders will offer assistance because they’d rather not incur the cost of foreclosure. Options include:
- Special Forbearance: a repayment plan based on your financial situation, perhaps including a temporary reduction or suspension of your payments.
- Mortgage Modification: a refinance of your loan to reduce the monthly payments.
- Pre-foreclosure sale: a sale of your home, even if the sale price is less than the amount you owe.
- Deed in lieu of foreclosure: a last resort, this lets you “give” your house to the lender without having to make any more payments. This won’t save your house, but it is not as damaging to your credit rating as a foreclosure.
Q: What if none of these strategies work for me?
If your lender is unable or unwilling to help, contact a HUD-approved housing counseling agency by calling (800) 569-4287 (9am to 5pm ET, Monday–Friday) to locate a housing counseling agency near you. These agencies can tell you about government services and programs, as well as private and community organizations that could help you. The housing counseling agency may also offer you credit counseling at no cost.
Q: Should I be aware of anything else?
Yes. Beware of scams! Solutions that sound too simple or too good to be true usually are. If you’re selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:
- Equity skimming. In this type of scam, a “buyer” offers to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The buyer may suggest that you move out quickly and deed the property to him or her. The buyer then collects rent for a time but does not make any mortgage payments and allows the lender to foreclose. Remember, signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.
- Phony counseling agencies. Some groups calling themselves “counseling agencies” may approach you and offer to help, for a fee. You can perform their services yourself for free, such as negotiating a new payment plan with your lender or pursuing a preforeclosure sale. If you have any doubt about paying for such services, call a HUD-approved housing counseling agency before you pay anyone or sign anything.
To protect yourself from crooks:
- Don’t sign any papers you don’t fully understand. Have a lawyer or your mortgage company review any document involving your home before you sign any contract.
- Get all promises in writing. If you’re selling the house to avoid foreclosure, investigate the prospective buyer by contacting your state’s Attorney General, the state Real Estate Commission, or the local District Attorney’s Consumer Fraud Unit.
Act now. Delaying can’t help. In fact, the longer you wait to seek help, the more likely that you will lose your home.