If you're in severe financial crisis and can't pay down your mortgage or manage your daily expenses, it's time for some quick action in order to have better control over your money.
Now, when you can't meet your mortgage payments, you may come across 2 situations: - Lender files foreclosure: The lender files a notice of default within 90 days of missing a single payment. The notice of default implies that foreclosure has been declared.
- Notice of Sale: In case you don't pay off the loan within 90 days of filing foreclosure, the lender will send you the Notice of Sale. Within a period of 15-30 days of sending the Notice, the lender will set up the auction.
However, you can avoid foreclosure. It can be as simple as planning your budget each month or having an emergency fund so that you can meet your monthly mortgage payments. If these options don't work out, try for loan modification. It can help reduce your interest rate/monthly payments or the total outstanding balance. Read on to find out how you can avoid foreclosure in any of the 17 ways given below.
Before lender files foreclosure- Build Emergency fund:
Apart from a tight budget, maintain some cash flow from your paycheck into an emergency fund. This is to ensure that you have enough cash to continue paying the loan in times of financial crisis.
- Cut down expenses:
In case you're having a tough time paying your bills, forget about any kind of extravaganza and find out areas where you can minimize your spending.
- Cash-out assets/Take up second job:
Try cashing out assets such as stocks, savings accounts and personal property which if sold off can give you lump sum amount. You may even take up a part time job to supplement your primary source of income.
- Avail Counseling service:
If you are in problems paying off your loan and wish to avoid foreclosure, contact a housing counselor for financial advice. There are FHA approved counselors to help you with the following:
- Analyze your finances and prepare monthly budget to ensure that you meet daily expenses including debt (mortgage and other loans, if any) payments.
- Call the lender on your behalf and discuss about work out options that can help you keep the home.
- Protect you from future credit problems before you are too far behind on your mortgage.
- Provide information about assistance programs/services in your area.
You'll find a state-wise list of HUD approved counseling agencies from the "Related References" section below. Besides, you can contact counselors associated with the National Foundation of credit counseling or the Association of Independent Consumer credit Counseling Agencies.
- Talk to housing non-profit:
You may seek financial advice from a housing non-profit such as HOPE National helpline. The counselor there can help you analyze your financial situation and then take important steps to get out of the mortgage mess and avoid foreclosure.
- Refinance the existing loan:
If there's enough equity in the home and you satisfy the lender's guidelines, then refinancing can be a good option to avoid foreclosure. While you refinance, don't just get lured by low initial rates on ARMs or interest-only payments; chances are that you may face even higher payments with these loans once the rates start adjusting.
- Emergency Mortgage Assistance programs:
In case you have lost your job or there is loss of income, and you feel it's not possible to pay down the loan, you can make use of emergency assistance programs in order to avoid foreclosure. Contact your state housing finance authority or the HUD to find out more on such programs.
However, not all lenders/banks will allow for these programs. In case the bank allows, it will send a notice asking you to seek assistance.
- Forbearance and Repayment plan:
Through forbearance, the lender may reduce your payment amount or even suspend it for a few months, so that you can get back on track and continue paying as usual. Often this is accompanied by the lender suggesting a repayment plan such that the dues are adjusted with the regular monthly payments after the suspension/reduction period is over.
- Reinstatement:
The lender may be willing to accept the entire amount you are behind as a single payment within a specific date. Then you can continue with the remaining debt on a monthly basis.
- Loan Modification:
Loan modification is one way by which you can avoid foreclosure on your home. This involves an agreement between you and the mortgage company after which the original terms and conditions of your loan will be modified so that you can afford to pay.
- Foreclosure Intervention program:
There are agencies which grant funds to delinquent borrowers and help in negotiating with lenders for payment rescheduling. But one has to qualify for such grants. For instance, your income, reason for late/missed payments or inability to pay, housing ratio and your ability to pay in future etc are some of the factors considered here. And, there's a maximum limit up to which the agency can offer the funds.
However, if you have FHA insured loan, you may qualify for an interest-free as well as payment-free loan to pay off the dues and get current on the loan. The loan needs to be paid back only after you've repaid the mortgage.
After lender files foreclosure
- Seek Court Protection:
If you are unemployed or underemployed, you can seek the court protection. In such a case the court may postpone foreclosure for the next 6 months. Within this period, you should try and gather funds to make up for the dues.
- File Chapter 13:
You may file Chapter 13 bankruptcy and avoid foreclosure sale. Through this process, you will be able to repay at least a certain percentage of the debt with the help of a trustee-approved repayment plan, that too, within a short period of 3-5 years. Know more….
- Sell off your property:
If you no longer wish to keep the home, you may sell it off at a price equal to the fair market value. But while you do so, take help from a realtor or a real estate agent in determining your home value, listing your home and quoting a price for it.
- Try for Short sale:
It may happen that you owe more than your home is worth in the current market scenario. In that case, you may negotiate with the lender for a short sale, although it will affect your credit score. Know how short sale works .
- Request for Deed-in-lieu:
In case you can't go for a usual sale, you can opt for this method. However, not many lenders initially agree to accept a deed-in-lieu. This is because they are not interested in your home; rather they'd like you to pay down the balance.
In this process, you relinquish your rights, give away property to the lender and get a mortgage release certificate in return. However, this too will bring your score down. Know more….
- File Chapter 7:
Filing Chapter 7 will put a temporary stop to foreclosure. However, depending upon state laws, you may or may not be able to keep the home. Know more….
What if none of the options work for you?
In case you fail to make use of any of the options stated above, there's no other way but to let your home go into foreclosure.
However, prior to the court declaring the date of foreclosure, you can redeem the loan by using the right of redemption. This allows you to pay off the mortgage along with the court costs and associated fees. You may even appeal to extend the date of sale if required.
Foreclosure is no doubt the worst choice to look for. So, do not ignore if you are upside down on your mortgage. Simply call up the lender and discuss ways on how to avoid foreclosure on your home.
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