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Foreclosure And How To Avoid It
By: Alberta Thomas
Foreclosure occurs when the homeowner falls behind in monthly mortgage payments
and defaults on the loan. The lender repossesses or sells the home in order to satisfy the
debt.
The best and most sensible way to avoid falling into default and having the lender
foreclose on you is to make timely mortgage payments. Several steps can be taken to ensure
your capability to pay your mortgage on time each month.
Strategies to employ to safeguard against default
_ Purchase only what you can afford.
_ Shop around for the best possible mortgage term and rates.
_ Steer clear of non-traditional mortgage loans.
_ Live within your means.
_ Set up a financial budget and stick to it.
_ Set up a rainy day fund for mortgage payments in case of a financial set back.
_ Prepare for the unexpected and plan financial changes accordingly.
_ Don’t count on tomorrow’s income. Realize that your income may stagnate while
your debts increase.
What to do if a foreclosure occurs
Circumstances change constantly. The financial climate fluctuates almost as frequently as
the weather. Unexpected medical costs, a death in the family, the loss of a job- all of
these can negatively impact on the financial situation of a homeowner. Therefore, the
worst possible event, a foreclosure, might occur.
A foreclosure will have a negative impact on your credit rating and have long reaching
impact into your future borrowing ability. Avoid foreclosure at all costs, even if it
means giving your home to the lender. Either way you lose your home, but with the second,
you maintain some credit worthiness.
Borrow money from friends and family to catch up on your mortgage payments. Only do this
if you intend to fully pay them back and believe that you will have the means to do so.
Agree to a realistic date for repayment of the personal loan.
Contact a housing counseling agency that has been approved by HUD. In general, these
agencies provide free counseling. Additionally, they might be able to offer government
services or programs that can help you out of this situation. In some locations, they
might be able to direct you to local community organizations that give assistance to
homeowners in need.
Contact your lender immediately and respond to any correspondence that you have received
from them. Explain your current financial situation, the immediate outlook of your
finances, and your need to rearrange your payment schedule. Bring supporting documents
with you when you speak to your lender. This will help to show your sincerity.
Lenders may often attempt to remedy the situation with a little creative financing rather
than go through the process of a foreclosure. After all, the lender simply wants to have
the loan repaid.
Possible remedies to the foreclosure
A mortgage modification happens when the lender changes the term of the loan by adding
additional months or years to the mortgage. In turn, this will lower the monthly payments
and prevent a foreclosure. Again, the borrower must be able to show evidence that he will
be able to meet the new payments.
A special forbearance is a process in which the lender arranges a repayment plan that
works within the borrower’s current financial status. This might lead to a suspension
of the monthly payments for a short time or at least a reduction in the expected amount.
It is extremely important that financial documentation be provided that indicate the
viability of this plan through the homeowner’s ability to meet the new payment
schedule.
A partial claim involves a one-time offer from the FHA-insurance fund that allows a
one-time payment to get the homeowner’s mortgage current. The homeowner will need to
sign a promissory note in which a promise to repay the loan is made. A lien is placed upon
the home for this additional amount of money. Two conditions exist- the borrower must be
able to begin full mortgage payments and must have been at least 4 months delinquent in
payments but less than 12 months delinquent.
A pre-foreclosure would allow the homeowner to sell the house for less than what is owed.
However, the sale is not listed as a foreclosure, so it does not hurt the homeowner’s
credit rating.
A deed-in-lieu of foreclosure requires the homeowner to give the home to the lender.
Although the homeowner loses the property, he maintains some of his credit rating. The
benefit will be realized later should the individual decide to apply for another loan.
Important points to remember
Make sure that you can afford what you buy. Make your monthly payments in full and on
time. Make a plan and stick to it.
Foreclosure And
How To Avoid It
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