Did you know that every three months, approximately 250,000 American families are at risk of losing their home through foreclosure?
Once you’ve been foreclosed on, you not only lose your home, but your credit is negatively affected for 7-10 years. With a foreclosure on your credit, your ability to secure a new home for your family is significantly reduced, as is your ability to secure rental housing, auto loans, credit card, or other loans.
Because of the credit implications and the risk of losing your home it is important to avoid foreclosure as quickly as possible. If your lender has filed a default notice on your mortgage, there are a number of things you can try in order to prevent foreclosure.
We’ll go through all of these in more detail below. Keep reading to learn how you can stop foreclosure.
If you fail to make mortgage payments to your lender, they have a legal right to repossess your home. They will then sell the home to cover whatever debt you owe them. This is typically done via short sale or by auction on the courthouse steps.
Before your home is repossessed, your mortgage lender will file a default notice. These are typically filed after three to six months of failing to make payments. Once this is filed, you enter what’s known as the “pre-foreclosure period”.
During this time, you have some options – IF you act quickly. You can bring your mortgage current by paying all late payments, including principal, interest, fees and penalties. If that’s not an option, there are other steps you can take that may help you avoid foreclosure.
The negative consequences of foreclosure go beyond losing and having to move out of your home. Your credit is also negatively affected, which will impact your ability to secure future loans.
Foreclosure is the beginning of a 7+ year nightmare that starts with the county auctioning your property off on the courthouse steps and potentially having the sheriff evict you and your family from your home and placing all your belongings on the curb.
Even if you choose to rent instead of own, rentals often check your credit history when determining if they will extend housing to you. Your options for acquiring vehicles, credit cards and other loans are virtually gone once you have a foreclosure on your credit report.
Therefore, it is very important that you avoid foreclosure and act quickly if you find yourself facing foreclosure.
There are a number of things you can try to avoid foreclosure. Below, we outline nine things you can do to prevent foreclosure. These tips might help you save your home and, at the very least, they’ll help you save your credit.
Before you do anything, know what you can do. That means reading your loan terms thoroughly so that you know what your lender might do and when they might do it.
You might also want to become familiar with the laws regarding foreclosure specific to your state. Being prepared and knowledgeable will help you with the steps you’ll need to take.
Ignoring the problem won’t make it go away. You should quickly address the problem head-on to increase the options available to you. The further behind you are on payments, the harder it will be to find an option that will help you stay in your house.
As soon as it becomes clear that you’re going to have a problem making payments, you should contact your lender. Reputable lenders will have options to help you through these difficult times. BUT you have to act quickly. Lenders do not usually move quickly and if you’re facing foreclosure, time is not on your side.
If you’re facing foreclosure, you will need to make the payments on your home your priority. Look into your spending and cut anything that isn’t essential. That might mean sacrificing cable, gym memberships, dining out, and any other unnecessary spending.
You might be able to avoid foreclosure if you can renegotiate your loan with your lender. Your lender might agree to change the terms of your loan to make them easier for you to make payments. That might involve lowering the interest rates or extending the length of the term in order to decrease your monthly payment. This can be an option if you act quickly.
Remember, banks do not move quickly so it’s imperative that you be deliberate in taking initiative to help yourself and your family.
You might be able to secure help through a number of government programs.
The U.S Department of Housing and Urban Development (HUD) offers counselling that’s either free or at a very low cost. A counselor can help you understand your situation and the options available to you. They can help you organize your finances and even act as your representative when talking to your mortgage lender.
There are also programs such as the Making Home Affordable Program. Through this program, you might qualify for the opportunity to make your monthly mortgage payments more affordable. Unemployed homeowners might also consider the Home Affordable Unemployment Program or the FHA Special Forbearance.
In some cases, the lender may allow you to remain in a short term rental property arrangement in your home until you find a new place to live. This is known as the right to retain occupancy and it’s worth trying to negotiate if the loss of your home is inevitable.
If you’re not able to bring your mortgage to current, renegotiate your loan, or secure foreclosure relief, then you might consider selling your home. You’ll have to get approval from your lender to do this. Essentially, it means that you sell your home for a price that’s in the ballpark of what you owe, and the lender receives those proceeds to cover your debt.
Lenders sometimes agree to this arrangement because it helps them avoid foreclosure paperwork, eviction, and having to sell a house. It can get them most of the money they’re owed without having to do any of the heavy lifting.
It’s often times also a more beneficial choice for the homeowner than a foreclosure. Although missed payments still reflect poorly on credit scores, foreclosures look a lot worse. And through this arrangement, a homeowner isn’t restricted from purchasing property for five to seven years.
However, short sales typically aren’t short – they typically take MONTHS to complete, and if time is not on your side, you may not have the luxury of a short sale.
There are investors who will buy your property “as-is” for cash. Cash closings can happen very quickly and sometimes investors can put a little bit of cash in your pocket to help with your moving expenses or allow you to stay in your home for a few weeks until you make other living arrangements.
It is unlikely you will receive much money from a short sale or investor purchase, but they can help save your credit and help you avoid the helpless feeling of having your home foreclosed on and having to be forced out.
Another option when the loss of your home is inevitable is to sign a deed-in-lieu of foreclosure. This means giving your deed to the lender in return for them forgiving the mortgage and canceling the foreclosure. This option, however, might have as devastating an impact on your credit score as a foreclosure.
When you’re in a financial situation where you can’t pay your mortgage or other debts, you might think about filing for bankruptcy. When you file for bankruptcy, the government stops all creditors from collecting debts from you. It does negatively affect your credit to file for bankruptcy, but it will delay a foreclosure to give you time to come up with a plan of action.
The best way to avoid foreclosure is keep your mortgage to current. If you’re unable to do that, the methods above are worth trying in order to avoid foreclosure. The most important thing you can do is TAKE ACTION. Try not to get overwhelmed or paralyzed – it is in your best interest to ACT quickly.
If you need to sell your house fast in order to avoid foreclosure and to protect your credit, there is help. Find out more about how we can help you do that.
Lisa is a local real estate investor in Austin Texas.