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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
The FMV of my home is less than the combined mortgage/home equity loan balance. I do want to sell the home as I cannot afford the monthly mortgage payments as I am 66 years old and on social security.

What realistic options do I have? thanks,
Posted on: 03rd Feb, 2011 06:36 am
hi laurence,

you can contact your first lender and apply for a deed in lieu of foreclosure. this will help you in selling off the property and you won't be liable for paying any deficient amount to the first lender. however, you'll be liable for paying off the second mortgage dues to the second lender.

thanks
Posted on: 03rd Feb, 2011 09:57 pm
I had a home modification about a yr in a half ago in aug. wife and I seperated filed for divorce and got back together in late Dec. due to all of that drama our morgage defaulted since then we have started marriage counseling. Filed our tax returns and called to make pymnt and were told acct. has gone with the attorney. We are very nervous we have two young children 3 & 5. I need all of your advice we live in TX.
Posted on: 15th Feb, 2011 06:56 pm
Hi Guest,

Unless the lender agrees to your home loan modification, you won't be able to save the property. You should contact your lender and negotiate once again for a loan modification and convince him to accept your request.

Thanks
Posted on: 15th Feb, 2011 09:29 pm
Thank you Jessica, this is really awesome thread and it makes the forum a better place with knowledgeable mentor like yourself, gmakerley and the rest. Thank you!
Posted on: 22nd May, 2011 02:14 am
It's really good to know that you liked the MortgageFit Forums! :-)
Posted on: 23rd May, 2011 10:21 pm
It s really a good article. One should be careful and take into consideration of all these options and always be safer.
Posted on: 25th May, 2011 01:17 am
i have two mortgages on a condo which is presently worth 210k. the first mortgage is an interest only 5yr arm for 203k which is presently floating on the 6 month libor (so far so good as rates have dropped from 6.75 to 2.75). the second mortgage is 30yr fixed at 7.5 for 32k. i want to sell but i'm under 10-20k. any advice? is a short sale advisable or just walk away?
Posted on: 10th Feb, 2012 09:13 am
Welcome rwolff,

If you walk away from the property, it will have a severe negative affect on your credit score. Your property will be foreclosed and your credit score will get lowered by 250 points. It will be a better option if you could short sale the property. This will help you in selling off the property and your scores will lower by only 80-100 points.
Posted on: 13th Feb, 2012 12:32 am
All the points seem to be useful/...
Posted on: 22nd Feb, 2012 03:57 am
I am current in my mortgage. But, I want to turn it over to the bank. I owe 252,000 and it's valued at 125,000. A short sale really can't happen because of the gap, and I propably would qualify for hardship due to income (69,000 per year). I want to be out by august 2012. Do i continue to pay my mortgage, or do i try to turn it over to the bank at the end of july as a "deed in leiu foreclosure" scenario.
Posted on: 26th Apr, 2012 12:07 pm
welcome djc,

you can contact your lender and apply for a deed in lieu of foreclosure in order to get rid of the property. if the lender accepts your request, then you can get rid of the house and you won't be liable for paying off the deficient balance resulting from the sale of the property.
Posted on: 30th Apr, 2012 01:39 am
Many people have complain that they caught once or many times in mortgage scamming. Only good mortgage broker can help you so you must ask your good friend or relative for right mortgage broker.
Posted on: 11th Sep, 2012 02:57 am
Explain to the individual in charge of reclassifying mortgages that you are undergoing financial hardship and are unable to pay your mortgage; explain what financial hardship, such as a job loss, is causing this issue. Thanks.
Regards,
Home Loan Mortgage
Posted on: 18th May, 2013 01:55 am
we are behind 8 payments on both first & second, filed chap 13 in
Feb. 2012, have to pay chap 13 court $701 on top of the first and
second . We are about $40k behind, lost my business (trucking)
july 2012, only get social security now. what if any help is available?
we are probably going to move in with family,and short-sale the
house. then start over and try to save for the future.
Posted on: 19th May, 2013 09:25 pm
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