This subject is top of mind right now as I just completed a very difficult closing where the sellers were very close to going into foreclosure. Unfortunately, the home owner’s hadn’t made a mortgage payment in several months and as a result, even though their house was selling, they had to come to the closing table with several thousand dollars to cover the back payments, fees, and other fines that had been assessed.
While it was a very close call, there are some steps you can take to avoid foreclosure:
1. Don’t Ignore the Problem.
This is the WORST thing you can do. Sticking your head in the sand, hoping the problem will go away is the quickest way to ensure you do lose your house to foreclosure. Recognize there is a problem, figure out what needs to be done to resolve it , and then set about trying to remedy the situation as quickly as possible.
2. Communicate With Your Lender Early and Often.
Remember, your lender DOES NOT want your house! That being said, it’s important to notify your lender as soon as you realize you’re in trouble and let them know you’re having financial difficulty. In many case, they’ll have resources they can direct you to to help you find a suitable solution to the problem. They may also be able to work with you to reduce your payments for a period of time until you’re better able to meet the financial obligations of your house.
But, you’ll never know any of this if you keep them in the dark and don’t communicate early and often with them!
3. Know Your Rights.
After communicating with your lender, it’s important to know your rights as the home owner. Pull out your loan documents and find out what options are available to your lender if it turns out you can’t make payments. Learn about the foreclosure laws in your state as well as timelines.
Knowing exactly what’s going on and what your rights are can be a powerful tool in your fight to avoid foreclosure.
4. Understand Your Options.
As scary as foreclosure may seem, if you get on top of the situation early enough, there are some things that can be done. However, it’s important to know what these options are in order to determine which one is offers the best solution to the problem.
5. Prioritize Your Budget and STICK TO IT!
In many cases, this one may be the most difficult step to take because it requires a great deal of fiscal responsibility. Review all of your finances and see where you can cut out non-essential spending in order to make your mortgage payment. Such expenses could include cable or satellite TV, non-essential memberships, or entertainment expenses. You should also consider delaying payments on unsecured debt, like credit cards, until your mortgage has been paid.
6. Use Your Assets Wisely.
This is where you get creative and in many cases, make some difficult decisions. Do you have assets laying around the house that could be sold for extra cash? Perhaps an extra car that isn’t absolutely essential? Could you pick up a second job to help supplement income until things improve? Even if these steps don’t bring in adequate enough money to make the mortgage payment, they do demonstrate to your lender a willingness to do whatever it takes.
7. Avoid Foreclosure Prevention or Recovery Scams.
Don’t be fooled by foreclosure prevention companies that want to charge you hefty fees to negotiate with your lender. While these may be legitimate companies, you’d be better of using that money to pay your mortgage. Your lender or HUD approved housing counselors have information and services available that could help you do the same thing these prevention companies would.
Additionally, be very wary of any company that claims they can stop your foreclosure immediately. In most cases, what happens is you end up signing over the property title and you become a renter in your home! Never sign any legal agreement without first reading and understanding all the terms and conditions. If you still have questions, contact a competent real estate professional or an attorney to help you explore all of your options.
Yes, foreclosure is a big, scary word and rightfully so. However, if you find yourself in this situation follow these 7 steps and things won’t seem as confusing or terrifying.
