How to Avoid Foreclosure
When you miss your mortgage payments, foreclosure may occur. This is
the legal means that your mortgage company can use to repossess (take
over) your home. When this happens, you must move out of your house. If
your property is worth less than the total amount you owe on your
mortgage loan, your mortgage company or HUD could seek a deficiency
judgment. If that happens, you not only lose your home, you also would
owe your mortgage company or HUD an additional debt. Foreclosure or a
deficiency judgment could seriously affect your ability to qualify for
credit in the future. So you should avoid it if all possible!
DO NOT IGNORE THE LETTERS FROM YOUR MORTGAGE COMPANY. If you are
having problems making your payments, contact your mortgage company
immediately. Explain your situation. Be prepared to provide them with
financial information, such as your monthly income and expenses. Without
this information, they may not be able to help. Stay in your home for
now. You may not qualify for assistance if you abandon your property.
Some of your options include the following:
- Special Forbearance. Your mortgage company may be able to arrange
a repayment plan based on your financial situation. Your mortgage
company may even provide for a temporary reduction or suspension of
your payments. You may qualify for this if you have recently lost your
job or your source of income or if you had an unexpected increase in
living expenses. You must furnish information to your mortgage company
to show that you would be able to meet the requirements of the new
payment plan.
- Mortgage Modification. You may be able to refinance the debt
and/or extend the term of your mortgage loan. This may help you catch
up by reducing the monthly payments to a more affordable level. You
may qualify if you have recovered from a financial problem but your
net income is less than it was before the default (failure to pay).
- Partial Claim. Your mortgage company may be able to work with you
to obtain an interest-free loan from HUD to bring your mortgage
current. You may qualify if:
- your loan is at least 4 months delinquent but no more than 12
months delinquent;
- your mortgage is not in foreclosure; and
- you are able to begin making full mortgage payments.
When your mortgage company files a Partial Claim, HUD will pay your
mortgage company the amount necessary to bring your mortgage current.
You must execute a Promissory Note, and a Lien will be placed on your
property until the Promissory Note is paid in full. The Promissory
Note is interest-free and will be due if you sell or leave your
property, or when your mortgage matures.
- Pre-foreclosure sale. This will allow you to sell your property
and pay off your mortgage loan to avoid foreclosure and damage to your
credit rating. You may qualify if:
- the "as is" appraised value is at least 70% of the amount you
owe and the sales price is 95% of the appraised value;
- the loan is at least 2 months delinquent prior to the pre-
foreclosure sale closing date; and
- you are able to sell your house within 3 to 5 months (depending
on what your mortgage company agrees to).
An additional benefit to this option is the assistance you will
receive with the Seller-paid closing costs.
- Deed-in-lieu of foreclosure. As a last resort, you may be able to
voluntarily "give back" your property to the mortgage company. This
won't save your house, but it will help your chances of getting
another mortgage loan in the future. You can qualify if:
- you are in default and don't qualify for any of the other
options;
- your attempts at selling the house before foreclosure were
unsuccessful; and
- you don't have another mortgage in default.
A housing counseling agency can help you determine which, if any,
of these options may meet your needs. You should also discuss the
situation with your mortgage company.
One last thing, 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" approaches you,
offering 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,
does not make any mortgage payments, and allows the mortgage company
to foreclose. Remember that 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 perform certain
services for a fee. These could well be services you could do for
yourself, for free, such as negotiating a new payment plan with your
mortgage company, or pursuing a pre-foreclosure sale. If you have
any doubt about paying for such services call HUD-approved housing
counseling agency. Do this before you pay anyone or sign anything.
Here are several precautions that should help you avoid being "taken"
by scam artist:
- Don't sign any papers you don't fully understand.
- Make sure you get all "promises" in writing.
- Beware of any loan assumption where you are not formally released
from liability for your mortgage debt and contracts of sale.
- Check with a lawyer or your mortgage company before entering into
any deal involving your home.
- If you're selling the house yourself to avoid foreclosure, check
to see if there are any complaints against the prospective buyer. You
can contact your state's Attorney General, the State Real Estate
Commission, or the local District Attorney's Consumer Fraud Unit for
this type of information.
I have a lot of experience working "short sales" with lenders, banks,
& mortgage companies. If you feel that foreclosure is
inevitable, call me at 435-668-7885 as I may have another
solution for you!!...or if you prefer...email me at
rod@rodusa.com!
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