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

Posted on: 18th Feb, 2008 02:00 am
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.

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...

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.

related readings

related forum discussions
related references
hello white-liley

so sorry to hear about your current mortgage issue.

you need to be sure to be speaking to someone within the loss mitigation department of your lender.

the person in that department will be able to check to see what workout options that you qualify for in order to keep your home.

please let us know if you still have questions.
good luck.
Posted on: 28th Jan, 2009 08:47 am
My husband and I have been in our home for 10 years. Our original loan was secured the old-fashioned way, but then a customer of ours talked us into re-fi to pay off some bills w/ an option-arm. Right now we can only afford the minimum payments, which will eventually go away. Back in August when I did get 3 months behind, I talked to my lender and they were not willing to refi at all. I barely got the assistance I did because we are self-employed and don't show enough income to support the house's value. I understand lenders have been slapped and want to go back to 'safe' lending, but my rate is variable, I've got payments stacking-up on the back end and I'm pretty sure my house has lost at least $50,000 in value, if not more.
We don't want to keep this ARM but we have no idea what to do in order to get a refi. Paying ourselves the salary personally that would enable us to afford the current loan would bankrupt our business with the added payroll taxes, etc. we would have to pay. (Limited Liability Corporation)
What to do? My husband is considering trying to find an owner-financed house and then let this one go into foreclosure because we couldn't rent it for what the mortgage is and I doubt it would sell, short or otherwise. We have quite a few homes in the area that have been for sale over a year.
Posted on: 06th Feb, 2009 11:15 am
hello melody,

i know that i am really repeating myself, but you truly need to be speaking to someone in the loss mitigation department of your lender. there are several different workout options that you may qualify for due to your income issues and the arm. and you can always request to be put on a fixed rate as well.

just letting your property go into foreclosure is never the first option. and not to mention how harmful it is to your credit.

just keep in mind what i have already said about the new "fannie mae" workout option:

let us know if we can try to help you with anything else.

good luck. :d
Posted on: 06th Feb, 2009 02:23 pm
Thanks for the response. Basically, I did talk to the Loss Mitigation Department (at least I believe so) and they wouldn't work with me except get me on a plan to pay back the owed mortgage payments over 60 days, two payments. All the abatements and other things I applied for were rejected because of not showing income. Which sounds stupid to me, but what do I know?!
I guess since now my lender has once-again been bought-out (at least on the banking level) it's time to try again.
Posted on: 06th Feb, 2009 02:40 pm
Hi melody,

I think you need to get out of this option ARM loan. It's been quite stressful for you to manage. You said you cannot show the income. Is it because you're involved in some business?

If the loss mitigation department isn't willing to co-operate with you, I think you need to do a refinance with some other lender.

Currently national average fixed rates are well within 5.5%. So, I think you'll be able to afford it. Of course a workout plan with the current lender would have been the best option. But if they don't won't to work with you, there's no other option than to consider a refinance.

What you can do is, consult a few lenders from this community as well. There are group of lenders who're part of this community. They have been helping people with a variety of loan programs. So, hopefully they may be able to help you out too. You can seek a no-obligation free mortgage consultation with them. This will help you understand what options you have for the refinance.

Posted on: 07th Feb, 2009 11:30 pm
My mortgage company has denied a loan modification for my situation, what should be my next step?
Posted on: 10th Mar, 2009 12:00 am

The reason why you were denied the modification could be that you could nor quite convince the lender of your difficulty in making payments through your Hardship letter. It may also be that your surplus left over in a month is shown to be too little or too much for them to approve a modification for you. You should take help from a lawyer or a loss mitigation expert wh has got a proven track record in the financial industry.
Posted on: 10th Mar, 2009 04:46 am
I just received the foreclosure package from the court. Before I engaged in the workout process to save my home, I noticed that in the foreclosure papers is a motion to Deed Reformation because "Inadvertently a scrivener's error resulted from mutual mistake, in the legal description of the property at the time of my closing". The questions is:
This situation can be a RESPA violation or any other Legal violation, that I can use to gain more time with the bank or the court for negotiations?
Please if you can help me with the answer.
Posted on: 02nd Apr, 2009 05:44 am
Hi Ruben!

Welcome to forums!

I don't think this would come under a RESPA violation. So, you may not be able to gain more time on this ground from the court. However, you can contact your lender and check out if you could go for a loan modification or sell off your property through a short sale.

Feel free to ask if you have further queries.

Posted on: 02nd Apr, 2009 09:45 pm
Great article Jessica, you have made this very clear for consumers!!!!!
Posted on: 14th Apr, 2009 07:29 pm
NEW dilemna: my family wants to move but we cannot qualify for a 2nd mortgage as our first loan is higher than the market value. We are not in financial burden yet as our income is stable and our credit scores are great. Any suggestions on what we should do or are we stuck? Should we risk the talks of short sale, BK and foreclosure??? Another odd question is if we file BK do we still have to make payments on existing credit card debts and car loans? I love this forum, by the way!
Posted on: 17th Apr, 2009 07:06 pm
Welcome Matt,

You have mentioned that your family wants to move out. In that case, you can try to sell off the property. But once you sell off the property, you'll have to clear off the mortgage dues immediately. If the credit card debts are fully discharged, then you'll not have to make payments on it.
Posted on: 27th Apr, 2009 01:04 am
What about if we can not sell the house? We are in the situation that we do not live there for almost 4 years. Until now we paid in-time. But we can not do it any more. There are a mortgage and credit line. What is the best option to go? Debt is more than a price now. Thanks.
Posted on: 28th Apr, 2009 02:01 am
And one more... who will pay house expensise (payments and property tax) if we are in short sale? Do the banks ask for payments when they agree for short sale? Thanks a lot.
Posted on: 28th Apr, 2009 02:05 am
Welcome ddd,

If you are delinquent on your payments, you can apply for a short sale. The lender will go through your hardship letter and decide whether he would accept your request or not. Though your property goes for a short sale, you will have to pay the property taxes till date. If you agree for a short sale, the lender will not ask for payments.
Posted on: 29th Apr, 2009 01:15 am
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