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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
Hi Nick,

A deed in lieu of foreclosure will help you in selling off the property. It will not save your property. I would suggest you to contact your lender and check out the whole agreement. You can ask your lender to give you a copy of that agreement which you can show to an attorney and take his opinion. The attorney will help you in deciding whether or not you should go for this agreement.

Take care.
Posted on: 14th Apr, 2010 03:07 am
by all means you need an attorney...speak with friends, family, business acquaintances, etc. in order to get a referral of an attorney who can be of assistance. you want someone who specializes in real estate, of course.

a deed in lieu of foreclosure transfers ownership of your property to the lender - i don't see how this is any form of "workout" situation for you that will enable you to keep the property. it looks to me like the lender is seeking possession and ownership of the property as well as payments on the underlying loan from you.

before you sign anything at all, you need legal counsel.
Posted on: 14th Apr, 2010 10:35 am
Does a Deed in Lieu of Foreclosure effect your credit. I had a rent-to-own fall through and now can't afford the mortgage. I have an 800-ish credit score and DO NOT want to screw it up. I owe $212K on the property and will be lucky to get $220K. Would almost rather just walk away from the whole mess but do not want to mess up my credit. Just heard about this . . . help?

Danella
Posted on: 24th Apr, 2010 02:54 pm
Hi Danella,

Yes, a Deed in Lieu of Foreclosure does effect your credit negatively. However, in comparison to a normal foreclosure, the Deed in Lieu of Foreclosure's negative effect on your score is less. Still, it is better to go for a loan modification. It allows you to keep your home. It doesn't even hurt your score, and the loan amount may get reduced.

Thanks,

Sandra
Posted on: 26th Apr, 2010 03:57 am
How far can you be behind on mortgage payments before you can seek chapter 13... And can this help also include other payments I may have so we can get things back in order to start paying all of our payments on time again.
Posted on: 02nd May, 2010 07:32 pm
Welcome anonymous,

As far as I know, there is no such time period to default the loan before which you won't be able to file Chapter 13. You will be able to file Chapter 13 even if you are a month late on your mortgage payments. You will be able to include your other debts as well when you file bankruptcy.
Posted on: 03rd May, 2010 12:16 am
we filed for bankruptcy, and it is done, but since we have missed over 6 house payments, they sold our house without due process, meaning no legal serve, or posting?, when do i have to leave the premises, or what else if anything can i do?
Posted on: 16th May, 2010 03:43 pm
Hi Guest,

I've given my suggestions in regards to your query at:
http://www.mortgagefit.com/problems/home-auctioned.html

Take a look at it. Hope it helps you.
Posted on: 16th May, 2010 10:42 pm
The best way to avoid foreclosure is to prevent the filing of a notice of default. Lenders do not want to exclude, but will file a notice of default to protect their interests, if any. If you know that is unlikely to meet their mortgage obligations, the first thing to do is call your lender.
Posted on: 21st Jul, 2010 01:38 am
we are an active duty family and were forced to move due to orders. our home has been on the market since 10/2009 and so far, no offers. we now reside in a different state, 2400 miles away and are behind on mortgage payments by 6 months. we were served a summons /foreclosure notice 2 weeks ago. we have been trying to work with the bank ( citi mortgage) but they are not very helpful and keep losing paperwork. we have requested a deed in lieu of foreclosure now, hoping it will get approved before my husband deploys in 2 months. what kind of tax consequence are we looking at? will it make a difference that my husband will be deployed when final papers are signed since all income is non taxable during deployment to a war zone?
Posted on: 03rd Aug, 2010 09:06 am
Hi Guest!

Welcome to forums!

If your husband goes for deed in lieu of foreclosure, the balance amount resulting from the sale will be forgiven. The forgiven amount will be considered as taxable by the IRS. But due to the Mortgage Debt Relief Act, your husband won't have to pay taxes.

Feel free to ask if you've further queries.

Sussane
Posted on: 04th Aug, 2010 11:45 pm
The best way to avoid foreclosure is to prevent the conclusion of formal notice. Creditors do not want to close the file, but the formal notice to protect its interests if necessary. If you know you could meet the requirement of a mortgage, the first thing to do is call the lender.
Posted on: 06th Aug, 2010 10:45 pm
Nice post very helpful solutions
Posted on: 04th Oct, 2010 06:18 am
can the timeshare companies attach your wages
Posted on: 25th Oct, 2010 05:31 pm
Hi Jayne,

If you do not pay off the dues on time, then the timeshare company can file a lawsuit against you and get a judgment to garnish your wages in order to recover their dues.

Thanks
Posted on: 27th Oct, 2010 12:25 am
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