10 Tips To Avoid Foreclosure
If you stop making your mortgage payments, you may face foreclosure. Foreclosure is the legal process that a lender can use to repossess your home.
There are two types of foreclosure: judicial and nonjudicial. Judicial foreclosure requires a lender to utilize the court system to obtain a judgment from the judge to begin the foreclosure process. Nonjudicial foreclosure allows a lender to foreclose on a property without the court's involvement.
In most states, if you are facing foreclosure on a property worth less than the total amount of your mortgage loan balance, the mortgage company may pursue a deficiency judgment against you. If that happens, you not only lose your home but also owe your mortgage lender an additional amount. In 12 states known as non-recourse states, the law prohibits lenders from pursuing you beyond what is available in your home equity.
Both foreclosures and deficiency judgments may affect your credit score and your credit report for years to come. Below are some tips on how to avoid the foreclosure process.
1. Be Proactive About Tackling the Issue
The more you owe in missed payments, the more difficult it will be to rehabilitate your loan and avoid foreclosure proceedings. The pre-foreclosure process is lengthy, and most state laws require lenders to provide several notices to borrowers who are in default on their mortgage loans. The worst thing you can do is ignore these notices.
2. Reach Out to the Bank as Soon as Possible
Lenders want to avoid the hassle of a foreclosure sale just as much as you do. Most lenders offer mortgage relief to help borrowers facing financial hardships. Options may include:
- Loan modification
- Repayment plans
- Extending the length of the loan term
- Refinancing to lower the interest rate on your mortgage loan
- Short sales and deed in lieu of foreclosure
Some lenders and loan servicers are willing to offer a forbearance period on the loan. This allows homeowners to stall their mortgage payments for a specified period.
3. Maintain Correspondence With the Bank
Your lender probably sent you warnings in the mail about the delinquency. Those letters also offer choices for foreclosure prevention. They may be able to help you overcome your money challenges and stop foreclosure altogether.
You might also get letters about lawsuits in foreclosure court. Make sure to write down the important dates, and reach out to your lender for options to avoid court.
4. Inform Yourself About the Law
Review your mortgage documents so you can understand the consequences of delinquency. The documents will often include references to federal laws, as well as the laws of your state. Since the COVID-19 pandemic, more laws have been put in place to protect homeowners facing default. It's a good idea to educate yourself on foreclosure laws. Your state's housing counseling agency may be able to provide you with valuable information.
5. Explore Your Choices
There are different approaches to loss mitigation. That means you and your lender can get together to formulate a plan for foreclosure prevention. The Federal Housing Administration's (FHA) website might be helpful.
6. Reach Out to Housing Advisors
The U.S. Department of Housing and Urban Development (HUD) provides cheap — and, in some cases, cost-free — access to housing advisors. HUD-sponsored counselors can provide housing advice all over the country. They can explain federal and state laws and suggest refinance options. Some counselors might even participate in correspondence with your lender on your behalf.
7. Get Your Finances in Order
If you don't want to lose your house, you have to reevaluate your financial priorities. There are areas where you can reduce or eliminate spending so you'll have more money left over for mortgage payments. Costs like property tax and insurance payments are obvious priorities. But avoid splurging on luxuries like television entertainment or fancy dining. See if you can negotiate more time for payments on credit cards and other debt until you have balanced your pocketbook.
8. Look to All Your Property and Income Sources
Do you have other property that you can sell for money to make your loan current? Examples include:
- A second car
- A whole life insurance policy
Also, look for opportunities to diversify your income sources. That might mean someone else in the family may need to pick up an extra shift. You can consider a second job or a freelancing gig that brings in extra income. If you can show your lender that you're trying your best to make your payments, they'll be more willing to give you a break.
9. Be Wary of Foreclosure Prevention Advertisers
You'll likely run across companies that advertise foreclosure prevention services. Many of these businesses over-promise what they can deliver. Some of them might be scammers. Instead of falling into traps from companies that prey on the vulnerable, save your money. Whatever you were going to pay them is better spent toward bringing your loan current.
Not all foreclosure prevention businesses are scammers, but they'll still charge you a lot of money. They may sometimes charge as much as three times your monthly mortgage payment. You can get the same information and services from your lender or a HUD-approved housing counselor for free.
10. Watch Out for Foreclosure Scams
Some recovery companies might promise to stop your foreclosure instantly. They'll ask for your signature on various paperwork. Some of that paperwork might give them your power of attorney. Even worse, the contracts might put the title to your property at risk, allowing scammers to take over your home.
Never sign a legal document without reading and understanding all the terms. It is always smart to obtain expertise from an attorney, a real estate agent, or a HUD-approved housing counselor. Contact a real estate attorney today.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.