Homeowners who fall behind on their mortgage risk having their home taken away by the bank or lender in a process called “foreclosure." Those who have been through foreclosure suffer a drop in their credit score. They must also wait a set period before buying another home.
But foreclosure proceedings do not always lead to the loss of your home—at least not right away. Fortunately, there are steps you can take to prevent foreclosure, including:
- Contacting your loan servicer and asking for a reinstatement
- Getting a loan modification
- Selling your home
This section includes tips on how to avoid foreclosure, including ways to reduce your mortgage and get help with housing and credit counseling.
What To Do When You Get a Foreclosure Notice
As soon as you get a foreclosure notice, it's important to know you have options. Housing and credit counseling can provide guidance on how to delay or avoid a foreclosure. They can also help you find ways to reduce the damaging effects of foreclosure if you end up having to go through one.
It's also a good idea to contact your loan servicer or mortgage servicer as soon as possible. You may be able to negotiate a change to the terms of your loan and lessen your mortgage payments. In some cases, this could allow you to keep your home.
Most people will want to keep their homes rather than foreclose. The benefits of doing so include:
- No record of foreclosure on your credit history
- Less difficulty in the future taking out other loans, including mortgages
There may be accessible alternatives to foreclosure. The best solution depends on your circumstances.
Of course, it makes sense that you would want to keep your home. But your loan servicer may not accept your proposed revisions to your mortgage agreement. They may add their own requirements. If you cannot meet those requirements, you may not be able to avoid foreclosure through reduced mortgage payments.
Finding Foreclosure Prevention Counseling
If you're having a hard time paying your monthly mortgage, you may want to speak with a foreclosure prevention counselor. They can help you find strategies to correct your situation. Many counseling sessions are now conducted remotely.
While homeownership counseling agencies can be useful, it's important to be aware of scams. If a counseling agency charges an advice fee or offers a scheme that will rescue you from foreclosure, it may be a scam. It is also illegal to send your mortgage to one of these agencies directly.
The U.S. Department of Housing and Urban Development (HUD) can help those looking for counseling services find reputable aid services. Look for a HUD-certified housing counselor or nonprofit foreclosure counseling agency. HUD-approved housing counseling agencies can provide free advice. They can help you determine whether a loan modification or refinance program is available.
Working Directly With the Lender
Your lender may seem like the last one you want to call if you're having trouble with your mortgage. But doing so is often in your best interest. You may be able to work with your mortgage company on revising the terms of your mortgage loan.
Lenders may be difficult to communicate with. But they generally would rather work out an arrangement that allows you to stay in your home. Foreclosures increase the burden on lenders since they now have another home to sell.
They may offer any one of the following solutions:
- Forbearance: Forbearance is a process where the lender may reduce or suspend payments for a period of time. The borrower must prove that extra funds will be available later, such as when a tax refund or work bonus is distributed.
- Loan Modification: A loan modification involves rewriting the mortgage terms or changes to a few of the original terms of the mortgage agreement.
- Reinstatement: A reinstatement is often used together with a forbearance. It allows borrowers to make up missed payments within a given timeframe.
- Repayment Plan: A repayment plan usually involves a negotiated amount added to the monthly mortgage in order to pay off past-due balances.
- Refinancing: Refinancing is available only if you have enough home equity to pay off the old mortgage and other fees with the new mortgage. You must have this level of home equity to refinance your home. Remember, time is of the essence. Contact your lender as soon as you believe you may need help with your mortgage in order to avoid foreclosure. Eligibility will depend on your specific circumstances.
- Bankruptcy: If all other options have been exhausted, you may need to file for bankruptcy. Once you're in bankruptcy, all debt collection activities (including foreclosure) are put on hold. This grace period can sometimes give homeowners the chance to get out of debt or negotiate with the lender. Bankruptcy only should be used as a last resort. It has long-lasting financial implications.
Letting Go of Your Home
It's not at all ideal to have to let go of your home. But in some cases, it's best to walk away. It may even reduce otherwise crippling stress. Other articles in FindLaw's foreclosure section can help you understand what happens if you proceed in foreclosure or give up your home some other way:
Know Your Rights in an Eviction
It's important to know your rights if you are forcibly removed by authorities from a foreclosed home. There are ways to stop eviction after a foreclosure. It may be necessary to work with an attorney under these circumstances. Even if you're a renter, you could benefit from knowing more about these rights.
It can be difficult for certain struggling homeowners to avoid foreclosure. But it's usually worth the extra effort. Loss mitigation is a priority, and there are several options available, such as:
- Reducing monthly mortgage payments
- Negotiating with your mortgage lender
Consumer protection programs and laws forbid certain predatory practices from mortgage lenders. You can also work with an attorney to help protect your rights. Foreclosure prevention resources are vast and can be readily available. It's not always the case that you will need to undergo a foreclosure sale, whether it be a short sale or handled in a different fashion.
Whatever your unique set of circumstances, know that legal services are available to you. Contact a real estate attorney if you need more help. The foreclosure process is a stressful one. It's important to get the help you need.
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