AVOID FORECLOSURE
If you are having trouble making your mortgage payments on time, you may be at risk of foreclosure. Foreclosure is the process by which the Lender takes back title and possession of your home. The entire process takes 6 to 9 months. In today’s climate, foreclosure is more common than ever. That’s why the American Recovery and Reinstatement Act of 2009 was put into place. This website has all the information a homeowner needs to find help and avoid foreclosure. There are several options available to avoid foreclosure; you should consider all of them before making a decision. Never Pay Someone to help you avoid foreclosure, counseling services are FREE through several government agencies, and there are a large number of un-reputable companies preying on homeowners. 888-995-4673 is the phone number for HopeNow www.hopenow.com which is the best place to start.
The first thing you should do is educate yourself by visiting the two website's listed above. Once you have an idea of the assistance programs available, the next step is to contact your Lender. The sooner you contact them the better. Most Lenders will not do anything until you are at least 31 days late on your mortgage payment. Lenders have their own assistance programs to help homeowners AND the Government Programs. I have found that the Government Programs are far more favorable to the homeowner. You may qualify for more than one. If you prefer to talk to someone about your options first, call 888-995-4673 and a counselor will answer your questions and get you started.
Below I have listed the definition of some of the terms you will encounter during your research. They are in no particular order.
A temporary agreement that delays payments for a short period of time. Basically your Lender is saying it is OK to miss a certain number of payments (usually 1-3). If your financial trouble is short term this may be a good option. The missed payments have to be accounted for, so be sure you know how they plan to do that. The best option for you is to have them added on to the loan balance. This WILL AFFECT YOUR CREDIT RATING in a negative way even though you have an agreement with the Lender.
If you're behind on your mortgage payments, and the Lender has started a foreclosure process, you always have the legal right to a reinstatement. A reinstatement happens when you make a lump sum payment by a specified date (up to the day before foreclosure), bringing your account back to current status. This includes all late payments plus all penalties and any legal fees. Lenders often combine reinstatement with forbearance.
If you're behind on your payments, the Lender may give you a fixed amount of time to catch up, by adding a portion of your past due amounts with your regular payments, allowing you to get current. This increases your monthly payment until the past due amount is repaid. If you are having trouble making your payments, this will make the situation worse. Having the Lender add the past due payments to the end of the loan will keep your payments the same. This allows you to miss a few payments without having to make them up.
The terms of your loan can be adjusted. Changing the length of the loan (30 year to 40 year) or lowering your interest rate can make a big difference by reducing your monthly payment amount to something you can afford. This is where the Government Program is far better than most Lender offerings. To qualify, there must be ‘an event’ that makes it difficult for you to make your payments. An event is a lay-off, reduction in income, loan payment increasing (adjustable rate loan), major medical event in your immediate family and more. The US Government website Making Home Affordable has a series of questions you can answer to find out if you qualify. Banks have done a very poor job of modifying loans simply because they don't want to do it. Don't hold out thinking that this is the perfect solution because it will take at least three months to get an answer and it will most likely be 'no'.
In response to the recent mortgage crisis, the President has announced a new refinancing program called FHA Secure. This new program is through the Federal Housing Administration (FHA). It is only for homeowners who took out an Adjustable Rate Loan (doesn't have to be an FHA loan.) The big feature is that you can be behind in your payments and still refinance. In the past, you had to be current to refinance. As with all programs you must meet the following criteria to qualify:
You can find more information on the FHA Secure program.
There are a few options if you are dealing with severe financial circumstances or can no longer afford to make your mortgage payments. If your home is in foreclosure and you have no other option for keeping it, you might want to consider options listed below.
A Short Sale is an agreement between you and the Lender to sell the property for less than the balance of your mortgage, with the Lender taking the loss. This usually requires the use of a Realtor because the process is complicated. If you find a Buyer who makes an offer to purchase your home (at any reasonable price), you can ask the Lender to accept that amount and consider the loan paid in full. If you only have a first mortgage this can work. Be sure the Lender accepts the offer as ‘payment in full’ and does not expect you to pay the difference back. If the Lender does expect you to pay the difference back, it might be better to let them foreclose because the Lender can't come after you for any additional money after a foreclosure. If you also have a second mortgage on the property, both lenders have to agree to accept less. Second mortgage holders often times say NO because they get almost nothing and therefore have no motivation. In the case of a foreclosure, the second mortgage lender gets zero dollars. All of this has to happen before the foreclosure date, so contact a Realtor as soon as possible. You can and should continue to live in the house up to the sale date or the foreclosure date, even though you are not making payments. A Short Sale will have a negative impact on your credit report but not as bad as a foreclosure. Read my article titled 'Should I Short Sale My Portland Home' to get answers to the five most important questions sellers need answered before considering a short sale.
This last resort allows you to "give back" your property to the lender. This will have a negative impact on your credit report, but it will stop foreclosure, which is much more severe. In a Deed-in-lieu, you vacate the home and turn the keys over to the Lender without trying to sell it first. The Lender in turn agrees to consider your loan ‘paid in full’ with no additional money from you. You MUST have a real estate attorney review any paperwork from the Lender before you sign it or you may find yourself owing the Lender the full amount of the shortage years down the road. This is a risky option without legal assistance.
Taking a pro-active approach to home foreclosure avoidance is very important. If you lose your home to foreclosure the negative impact on your credit report is huge, but in a few years you will be able to purchase a home again .Timetable for purchasing a home after a foreclosure or short sale. Remember that as bad as things may seem, your current financial problems are most likely temporary. Avoid foreclosure now so that when you get back on your feet, you won't be restricted by a worse credit report than necessary. You may want to buy a home again someday.
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