How to avoid foreclosure-17 ways to get out of mortgage mess

Jessica
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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 get better control over your money.

If you find yourself unable to make your mortgage payments, one of 2 things may happen depending on where you live. They are:

  1. Judicial Foreclosure: Depending on your state's law, the lender may file for a foreclosure with your local circuit court and send you a summons.
  2. Non-judicial foreclosure: Some states permit a lender to foreclose without having to go into court as long as the lender follows that state's foreclosure procedures. This is called non-judicial foreclosure. Here, the lender will send you a default letter, and a notice of default will be filed. If you do not cure the default after a certain period, the lender will mail you a Notice of Sale, record it, and publish it.
However, you can avoid foreclosure. It can be as simple as planning your budget each month so you have an emergency fund to meet your monthly mortgage payments. If these options don't work, try loan modification. With a loan modification, you will be able to reduce your monthly mortgage payments and extend your loan term. Read on to find out how you can avoid foreclosure.

11 ways before lender files foreclosure

  1. Build Emergency fund:
    Apart from creating a budget, put some of your paycheck into an emergency savings account fund to ensure that you have enough cash to continue paying the loan.

  2. Cut down on expenses:
    If you're having a tough time paying your bills, try and find areas where you can minimize your spending.

  3. Cash-out assets/Take up a second job:
    Try cashing out assets like stocks, savings accounts and investment property that if sold can give you a lump sum you can use to pay down your debts. You might even consider getting a second job.

  4. Enroll with a Credit Counseling service:
    If you are having problems paying off your loan and want to avoid foreclosure, contact a housing/credit counselor for financial advice. There are FHA and HUD approved counselors to help you with the following:
    • Analyze your finances and prepare monthly budget to ensure that you can meet your daily expenses and repay your debts.
    • Call the lender and discuss about workout options that can help you keep your 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-by-state list of HUD approved counseling agencies in the "Related References" section below. You can also contact counselors associated with the National Foundation of Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

  5. Obama's Making Home Affordable program:
    If you have a Sallie Mae or Freddie Mac mortgage, then you may be eligible for mortgage assistance as part of Barack Obama's Making Home Affordable program. You can also get assistance with short sales and deeds-in-lieu.

  6. Refinance the existing loan:
    If there's enough equity in the home and you satisfy the lender's guidelines, then refinancing may be a good option to avoid foreclosure. When you refinance, don't get lured in by the low initial rates on ARMs or interest-only payments; the chances are good that you will face even higher interest payments on these loans once the rates start adjusting.

  7. Emergency Mortgage Assistance programs:
    If you have lost your job or your income has been reduced, and you feel it's not possible to pay down the loan, you can get help from an emergency assistance program in order to avoid foreclosure. Hope Now is one of the many programs available in the market.

  8. Forbearance and Repayment plans:
    With forbearance, the lender may reduce your the amount you pay each month or even suspend it for a few months so you can get back on track and continue paying. Often the lender suggests a repayment plan so that the arrears are rolled into the amount of the loan balance and you can continue repaying the debt once the forbearance period is over.

  9. Reinstatement:
    The lender may be willing to accept the entire amount you owe in a single payment on a specific date. Then you can continue repaying the debt on a monthly basis as though you were never behind.

  10. Loan Modification:
    Loan modification is one way you can avoid foreclosure on your home. This involves an agreement between you and the mortgage company where the original terms and conditions of your loan will be modified so that you can afford to pay on the mortgage.

  11. Foreclosure Intervention program:
    There are agencies that grant funds to delinquent borrowers and help them negotiate with lenders about rescheduling payment. In order to qualify you for these grants, the agency will look at a number of factors such as:
    • Your income,
    • The reason for the late/missed payments or inability to pay,
    • Your housing ratio
    • Your ability to pay in future.

    While there is a maximum amount of money these agencies can lend, if you have FHA insured loan, you may qualify for an interest-free or a payment-free loan to pay off the debt and get current on the loan. The loan needs to be paid back only after you've repaid the mortgage.
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6 ways after lender files foreclosure

  1. Seek Court Protection:
    If you are unemployed or underemployed, then depending on your state's laws, you may be able to seek the protection of the court. In this case, the court may postpone foreclosure for the next 6 months so you can try and gather the funds to get current on your loan.

  2. File Chapter 13:
    You may file Chapter 13 bankruptcy and avoid foreclosure sale if your other debts are preventing you from becoming current on your mortgage. Chapter 13 is designed to help you restructure and pay back your debts within 3-5 years.

  3. Sell off your property:
    If you no longer wish to keep the home, you can try to sell it off at a price equal to the fair market value. The best way to try and sell your property is to list it with a realtor or real estate agent.

  4. Try for short sale:
    A short sale is where you try to sell your property for less than the amount of your loan. If you attempt a short sale, you must get any offer approved by your lender. Learn how a short sale works.

  5. Ask your lender to accept a deed-in-lieu:
    If a short sale isn't working, then you might want to try to get the lender to accept a deed in lieu of foreclosure. However, most lenders are reluctant to accept a deed in lieu because they have to manage the property until they can find a buyer.

    With a deed in lieu, you give the house to the lender in exchange for being released from the debt. This will also lower your credit score. Learn more...

  6. File Chapter 7:
    Filing Chapter 7 will put a temporary stop to a foreclosure. However, depending upon your state laws, you may or may not be able to keep the home. Learn more...

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What if none of the options work for you?

If you fail to use of any of the options stated above, there's no other option but to let your home go into foreclosure.

Prior to judgment, you may be able to redeem the loan by using the right of redemption if your state grants you this right. This allows you to pay off the mortgage along with the lender's court costs and attorney fees.

Foreclosure is one of the worst things that can happen to you. The best thing to do if you're in danger of falling behind on your mortgage is to contact your lender or a credit counselor and discuss how you can avoid foreclosure.
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Mac_7

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Post     Post subject:

One may even consider renting out the home so that he/she can pay off the loan using the rent payments and thus prevent foreclosure.
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Mini Profile  adonis
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Post     Post subject: rate freeze program to avoid home foreclosure

There are initiatives taken by the government to help those behind on their home loans so that they can avoid foreclosure. One such initiative is the rate freeze program for borrowers having ARMs that will reset from January 1, 2008 and 31st July, 2010.

The community has discussed on the rate freeze at http://www.mortgagefit.com/tennessee/newlaw-variablerate.html .

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is it limited to tenessee only adonis?
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Mini Profile  Caron
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Post     Post subject: RE: avoid foreclosure

Hi Ryan,

The Rate Freeze Plan isn't limited to Tenessee, but throughout the nation. It's meant for borrowers who are likly to fall behind on their adjustable rate mortgages but haven't yet defaulted.

There's a new program now – "Project Lifeline" initiated by the government so that borrowers in default can avoid foreclosure on their homes. Under this program, banks will delay foreclosure proceedings for 30 days and this is applicable to borrowers having any type of mortgage, not just ARMs. At the same time, lenders will try to modify loans so that these can be afforded by the borrowers.

good luck

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Mini Profile  jbarto65




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What a great article, it explains everything so clearly, thank you.

I fortunately have mine all caught up and present and am happy to say that I am back on track and plan to stay there, in fact, come the end of the month, I will be one payment ahead. thank god that stress will be gone.
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Mini Profile  larry




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Post     Post subject: project lifeline to avoid home foreclosure

Hi,

This is really very helpful article. When this year is heading towards 1 millions of foreclosure, this article is really going to help the debt-stricken borrowers.

As Caron has mentioned above Project Lifeline is another government sponsor program to help borrowers avoid home foreclosure. Here Servicer will send letters to the seriously delinquent borrower to contact the servicer within ten days for counseling and trying to modify the loan term. But if the borrowers fail to respond the letter, then foreclosure proceeds.

Thanks,
Larry
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Mini Profile  enriko




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man, thanks this is a great post!!
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Mini Profile  kpatrick
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Great article, Jessica!
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Mini Profile  imdcorp




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Post     Post subject:

Great article. The homeowner should also be aware that for many of the solutions above that "forgive" debt such as short sale and bankruptcy. They may become liable for taxes as the IRS treats it as taxable income.
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Mini Profile  Caron
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Post     Post subject: RE: tax liability after mortgage forgiveness

Hi imdcorp,

I agree with you here. However, the tax liability remains if the homeowners does not qualify for mortgage debt forgiveness by satisfying the criteria as given at http://www.mortgagefit.com/deficiency/form1099a.html#44186 .

Morepover, if he's in California, he is liable for taxes on canceled debt unlike in other states.

good luck

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Mini Profile  fireyone_02




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Kudos...very good post indeed.
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very informative
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Mini Profile  AlaskaDES
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Post     Post subject:

Great Article!

I do, however believe in not letting cash flow limit one's potential. If you have the assets to free up, I feel that using a strategy to use the bank's money to pay the bank back would be another alternative to look at.

Living life on an Average Daily Balance system rather then an amortized system may be a possible alternative.

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Mini Profile  cliff3

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Great Post! Good also to note even if your lender has posted your home for foreclosure it is still "not" to late. Your lender will still modify your loan and/or do a repayment plan. In addition, project lifeline only includes the six of the nations mortgage companies. There are some mean mortgage companies out there who are still refusing to offer project lifeline. Make sure and call your lender and speak with a supervisor in the loss mitigation department they will help you with your options to save your home.
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