Foreclosure Is Not Inevitable For Distressed Homeowners

Foreclosure Is Not Inevitable For Distressed Homeowners
  • Opening Intro -

    Several years into the housing crisis and hundreds of thousands of homeowners are clinging to their homes, attempting to avoid foreclosure.

    Many have managed to fight off foreclosure by renegotiating their loans or have made other arrangements to delay the foreclosure process.

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In 2011 the foreclosure rate actually fell, but a significant increase in foreclosures is expected this year despite recent success by the Obama administration to have lenders contribute $25 billion to a settlement fund.

As always, the key to avoiding foreclosure is communication. The following tips can help you avoid foreclosure, perhaps giving you enough time to get your financial house in order and to move on:

1. Contact your lender. Never assume that your lender knows what you’re going through despite your payments being late or behind. Contact your lender and speak to the person who is in charge of servicing your loan. Explain your financial situation and discuss your options.

2. Work out a solution. Be prepared to offer a solution to your lender rather than accepting whatever is offered to you. One option is to have your late payments tacked to the end of your loan, effectively extending your loan terms, but wiping your slate clean. Your lender may accept this option if you have the means to make your monthly payments, but you don’t have the ability to play catch up. This method, by the way, is known as forbearance.

3. Keep clear and concise records. From the moment you communicate with your lender and on through the resolution of your mortgage problems, you’ll need to keep precise records on every phone call, in-person conversation or correspondence received. This is critical as documentation may be needed if your lender proceeds with its foreclosure action and your records show an alternate path, such as refinancing, that you can take.

4. Equity or not. Not all homeowners facing foreclosure are underwater or owing more on their home than what it is worth. Some markets are in recovery, having seen housing prices rise in 2011 or beginning to rise in 2012. If you have equity in your home, then you have additional leverage, funds you may be able to tap to help you make payments.

5. Inquire about the FHA Insurance Fund. If your mortgage is backed by the FHA, you may qualify for a one-time payment payment from the FHA insurance fund to help bring you mortgage up to date. Under this arrangement, your loan is at least four months late, but no more than one-year behind. You’ll also need to handle making full payments again once you are caught up.

6. Consider personal bankruptcy. If you’ve exhausted every possible option, consider filing personal bankruptcy. This should be an option of last resort because they’ll be no turning back at least for your credit rating which will take a big hit and reflect that hit for at least seven years. Bankruptcy will stop your lender’s foreclosure proceedings and may give you enough time to regroup and save your home.

Foreclosure does not have to be a given. By being proactive, you can delay or even avert foreclosure, allowing you to stay in your home.

See AlsoWhat You Need to Know About Short Sale Homes

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Categories: Consumer Financing