Mortgage Forum

Zino

Determining the best way to stop foreclosure depends on the specifics of your situation.

Various factors like the amount of equity in your home, your monthly payments, your current financial circumstances, what your monthly income is, and how far behind you are on your mortgage play a huge role in coming to an educated decision on the best way to stop foreclosure. Here’s how the foreclosure process works.

The Timeline

30 Days

Your troubles actually start as soon as you miss a single payment. Lenders may not contact you until you've skipped a second payment, but most will report the first late payment and every subsequent delinquency to the credit bureaus. Even a single late payment can devastate your credit score, the three-digit number that lenders use to help gauge your creditworthiness.

Each subsequent "late" further decreases your score, making it more difficult and more expensive to get a loan or a refinance that might help your situation. In addition, lenders typically tack on late fees of 5% or so for each missed payment.

90 Days to 12 Months

Eventually, if the payments aren't made, the lender will file a "notice of default" with a local courthouse and send you a letter saying that the
foreclosure process will start unless you make up the missing payments, late fees, and other associated costs.

How quickly the notice is filed depends on the individual lender and your individual state. Some lenders halt the foreclosure if you contact them to work out a payment plan or otherwise explain your situation. Others are more aggressive and start the process as soon as possible to try to protect their investment.

Usually, this notice of default means that the amount you owe has shot up as well, since the lender typically adds substantial fees to cover its legal costs.

The notice of default is generally picked up by the credit bureaus, further depressing your credit score and making refinancing the loan extremely difficult.

90 days more

Borrowers typically have 90 days from the notice of default to make
up the deficit before the lender sends out a "notice of sale," which sets a sale date for the house (typically within the next 15 to 30 days). In some states, it can be much longer. But your situation is not getting any better.
After missing mortgage payments for 3 or 4 months a mortgage company may “call” or “accelerate” the home loan.

Once this happens they no longer take a single monthly payment, instead insisting all back payments be made at once. While other options short of paying all back payments may be negotiated, the biggest mistake people make at this time involves allocation of what little cash they do have.

It almost seems natural since the mortgage company says they do not want your money, and the second mortgage company, credit card companies and others call everyday demanding money, that the proper thing to do is pay the others.

If there are ten people calling, making nine happy means fewer calls for you and less headaches in the short run.

In the long run this is a critical mistake.

At some point you will need money to save your home.

Many options exist to stop a foreclosure; but they will all require money. So start saving some money for your lender. After all, if you stop making your credit card payments, they give you a bad entry on your credit report.

If you can’t work out a loan program with your lender, they take your home!

Zino

The First Step to Save Your Home

The very first thing you have to do is sit down and consider whether you can actually afford to keep your home.

You have to be able to make your mortgage payments. If you agree to a lender's "workout" solution, or are able to get a new loan and stop your foreclosure, great! But if you fail to make the agreed-upon payments, you'll be right back into foreclosure.

This can be a big problem if the financial crisis that caused you to fall behind isn't over. We’ll show you what to do if that is the case a little later in this post. But right now, let’s find out if you can afford to keep your home.

You have to be realistic. Many times people struggle to hang on to a house that they simply can't afford. That may seem harsh, but sometimes it is the truth. I have received calls from home owners where they have been downsized, or lost their job. Their new job pays them half of what they were making before they were laid off.

If your home payment is $4000 per month, and you are now bringing in $3000 per month, you simply cannot afford to keep your home.
If you can afford to keep your home, you will have to put together some information for your lender to get them to work with you on a loan workout program.

What do I mean?

Basic income and expense information that shows them you can make
your mortgage payment if they are willing to work with you.
I am also including a simple income and expense worksheet that your lender will want to collect from you on the next couple of pages. Simply print it off, fill in your personal information, and have it ready for your lender.

Your lender will also want income documentation to support your case. This can include W-2s, tax returns, and any other income documents that support the income you are stating for your loss mitigation case.

You will also have to draft a “Hardship Letter”, which explains exactly why you have gone into default. You don’t have to be a professional writer; simply explain the reasons that have created the problem. There are a couple sample Hardship Letters at the end of this report.

Be as accurate as possible; but don’t lie. Simply show the lender why you need help with your home loan.

Remember, your lender is not in the real estate business; they really don’t want to take your home. They are in the “collect payments and make money from the interest every month” business.

So it is to their benefit to try and work out some type of repayment program with you. But you have to prove to them that you can make the payments; otherwise they will just cut their losses and go directly to foreclosure.

The next two posts are the Income & Expense Report.

Simply print them off and fill them out.

You will need to show this to your lender to prove your case. Be as accurate as possible, and begin getting together your income documentation for your lender. They will require you to fax that information to them.

This will also help you in other ways. Not only will it give you an idea of exactly where your money goes, but it may also surprise you. When you actually break down your income and expense information, you’ll find some areas that you can cut back on; especially with less than critical monthly expenses.

If it’s the difference between saving your home or spending $200 per month on your cell phone bill, I think the choice is pretty clear. Do not skip this first step. You will need this to go over your other options for saving your home in the following steps.

Then get out your calculator, because we will show you exactly what lenders look for to see if you can save your home.

Zino

To be continued....