Millions of consumers are finding it hard to pay their mortgage in these tough economic times. Perhaps you or someone you know is in such a predicament and sliding towards foreclosure. Before the situation becomes even worse, here are some suggestions to attempt to dodge foreclosure:
1. Whether or not you want to keep the home…
A. Learn what the foreclosure laws are in your state. Like the set timer on your stove counting down, your state gives your lender a specific amount of time before your legal right to your property is done. You need to know how long you have to redeem or sell your property so the full foreclosure does not occur. Contact your local Recorder/Register of Deeds or the Sheriff’s Department, who in most states holds the foreclosure auction, and they will be able to give you correct information regarding the time you have left to do something with your property.
B. Thoroughly investigate any person or company who contacts you about “rescuing” you out of foreclosure. Multiple foreclosure “scams” are being reported from coast to coast so contact your state attorney general’s office, the Better Business Bureau, or your lender before giving them any information or signing any documents. The last thing you need is to be swindled when you’re already in a bad situation.
2. If you want to keep your home…
A. Pursue “forbearance” with your lender. Perhaps you are behind on your mortgage due to a temporary reduction in income, and you fully expect to get back on your feet. Your lender can reduce or suspend your mortgage payments for a period of time, and/or they can arrange to take the amount you are behind and put it on the end of your mortgage when you pay off the loan. If and when a “forbearance” is done, make sure your lender puts it in writing, and keep the letter with your other important documents.
B. Attempt a “loan modification” with your mortgage lender. A loan modification is when the lender agrees to temporarily lower your interest rate for a set period of time to ease your financial burden. Recent government action and your lender’s motivation to have one less foreclosure make this a great option. Contact your lender directly to pursue this alternative and make sure they give you the details in writing regarding your “loan modification.” If they become difficult to work with, carefully consider a loan modification company only after investigating their references and fees. Search the internet for blogs and discussions about them. Call your state attorney general’s office to see if any complaints have been filed against them.
C. If your lender refuses to cooperate, file Chapter 13 Bankruptcy to protect your home from being foreclosed. In Chapter 13 Bankruptcy, you will have an opportunity to catch up on your mortgage through your repayment plan to the U.S. Bankruptcy Trustee.
3. If you don’t want to keep the property…
A. Sell the property for at least what you owe. Sorry to be so obvious, but sometimes with a foreclosure crisis it’s easy to forget you typically have 6 months to sell the property on your own. You may have to sell it yourself or go through a discount real estate broker. I realize the present housing market is very difficult, but homes are still selling. A difficult sale is always better than an easy foreclosure!
B. Negotiate a “short sale” with your lender. A “short sale” is when you and your lender agree on a sales price to sell your home for less than what is owed. In most cases in the current market, this is due to falling home values. Be sure to contact your lender about a “short sale” before you put your home up for sale. They may require an appraisal to determine fair market value. If you do sell your home by “short sale”, make sure you contact your tax accountant. The 2007 Mortgage Forgiveness Debt Relief Act changed tax laws so sellers who do short sales on their primary residence do not have to declare the shortage as income as long as it is less than $2 million. To be safe ask your accountant how it applies to your specific situation and short sale.
When it comes to escaping foreclosure, there are no easy solutions. You just have to do everything you possibly can to dodge it.