Mortgage Forum

gtull1

Your home loan is being foreclosed. That mortgage foreclosure is coming, and you either have to stop or avoid the foreclosure, or find a cousin to move in with. Your family is asking you if they need to pack their clothes and toys up for the move. You have about $200 in the bank, zero in your investment account, and enough bills coming in to stuff a dozen pillows with. Your wife just got laid off of her job. You have been working 2 jobs for a few months to get out of the financial hole from hell. You're desperate, scared, and willing to grab onto anything that will save your home and family.

Did all of that sound like a made up nightmare? Well it is a nightmare, but it wasn't made up. This is exactly the situation that my brother went through almost a decade ago. My brother wasn't able to stop the foreclosure because neither of us knew what to do at the time. I want to share a few pointers that i have picked up over the years on how to avoid a home loan foreclosure, and hopefully keep you from losing everything like my brother did.

1- The best way to stop a foreclosure is to not get in the overwhelming debt in the first place. I don't mean to sound like a jerk, but it's the absolute truth. When you start borrowing money for student loans, cars, TV's, a home, rental property, gas, and everything else under the sun, there's bound to be some repercussion somewhere along the way. Borrowing so much money that you can barely afford to pay the interest is probably not a good idea. Stop taking on more debt. Burn your credit cards (see: Credit Tips for Consolidating Debt for some really good advice on burning credit cards). Trim your expenses. Sell that fancy Cadillac Escalade and buy yourself a cheap, used Hyundai. The point is that at some point you need to become financially responsible. Make it your personal goal to stop borrowing cash from banks, and start paying those people off. The longer you wait, the worse it's going to get. If you really want to avoid the foreclosure, you can't go wrong by not getting in over your head to begin with. I know there are times when you can't really help the situation you are in such as a divorce, disability, illness, lost job, hurricane (been there, done that), death of a spouse, or even an adjustable rate mortgage (ARM) that suddenly decides to shoot through the roof. All of those things are possible, but we can usually stop the home loan foreclosure by being financially wise in the first place.

2- Calling the mortgage company to let them know you are behind is an excellent way to stop the foreclosure! Did you know that many home loan lenders are actually willing to help people that are having a hard time? I do because I am one of the lucky borrowers that decided to actually call Saxon Mortgage for some help (see: Negotiate With Mortgage Lender To Erase Bad Payment History for my true story). The point is that you really want to stop the mortgage company from sending you what is called a "Notice Of Default". This is a legal document that the lender will mail to you if you are late on making your house note payments, and it will place you on notice that you have defaulted on the terms of the mortgage. This is the first step in the foreclosure process, and it is something that you want to avoid at all costs. Simply calling your bank to tell them that you are going to be late can be the difference between receiving a notice of default next week and not.

3- Ask for a forbearance to stop the home foreclosure. A forbearance is an agreement between you and the mortgage company to place you on a repayment plan that will get you caught up on your house note payments. For example, let's say that you are three months behind on your house mortgage. A forbearance agreement to avoid a foreclosure would allow you to get caught up on your past due notes by paying them over the next 6 months (or whatever length of time you two can agree upon). The bank is agreeing to forbear the past due payments while you agree to get current on the loan. Lenders are often willing to do almost anything to avoid a loss, as your foreclosure will likely lead to them losing money (see: Loss Mitigation Phone Numbers for the phone numbers you should call for help). This is a great way to pay what you owe while avoiding the foreclosure.

4- You can request a mortgage loan modification to stop the foreclosure process on your home. A mortgage modification is an agreement between you and the loan company to change any of the terms in the home loan (see: Questions About A Loan Modification/ Mortgage Modification for better details about a loan mod). For instance, you could agree to spread out the past due payments over a year, lengthen the amount of time that the loan is for, or even stop an upcoming ARM adjustment. With the mortgage crisis causing foreclosures to happen in the U.S. at a rate that has never been seen (see: Foreclosure filings up 65 percent in April to get an idea of how bad this crisis really is), lenders are looking for ways to work out some type of an agreement to avoid a foreclosure. Times are tough, and now is the best time ever to ask for a loan note modification. When you are ready to take this step, I would highly advise that you read up on hardship letters. If you need to know what a hardship letter is, and how it is used to request a mortgage modification to stop a foreclosure, see: What Is A Hardship Letter?. If you need some examples of hardship letters to use as a basic idea of how to write one, see: Sample Hardship Letter.

5- You can sell your home to stop the mortgage foreclosure. This may not be the most attractive way of avoiding the foreclosure, but it is practical. If all else fails, and you just can't afford the home you're in, you are better off selling it for a profit than losing everything in a foreclosure auction. As long as you can sell the home for more than you won on it, this is a viable option to prevent a foreclosure.

6- You may be better off doing a short sale to avoid a foreclosure. If you decide to sell your home to pay off the note, but you realize that the house isn't worth as much as the mortgage on it, a short sale may be called for. This is where the lender agrees to take the less for the home than what is due on the mortgage. Some lenders will work out a short sale agreement with you, and some won't. You need to contact your mortgage company to find out if they will accept a short sale to stop the foreclosure. This will hurt your credit rating, but not nearly as badly as a home foreclosure would.

7- As a last resort, go for a deed-in-lieu of foreclosure to stop the foreclosure by the bank. This isn't a pretty option, and it really isn't any better than a regular foreclosure, but you may be able to negotiate some terms. With a deed-in-lieu of foreclosure, you simply hand over a properly executed deed to the home, and the mortgage lender cancels the mortgage. Both parties walk away from the deal, you lose your house, and your credit will be harmed just as much as it would have if your home was just foreclosed upon. In other words, don't try this option unless all else fails.

These are the things you can do to prevent a foreclosure on your home, or at least the methods that I know about. Do any of you lending experts have some other suggestions?

lauren14

gtull,

great message, you spelled out all the options very well. its nice that this forum is trying to educate people, so instead of giving up, they can try some tactics that do work.

my opinion is when someone can't make their mortgage payments anymore, they should call the lien holder right away to know what their options are.

the lien holder will usually send a packet of information with options available to the homeowner. Out of that information the homeowner will not qualify for everything. They will usually only qualify for very little help, if any.

Short sales seem to be the best answer is todays market. but a quick warning to anyone that reads this, my full time job is negotiating short sales, so of course i'm going to think this is the best option. I have many clients come to me stating that they tried to work out something with the bank, but what the bank offered was not nearly enough. The one thing i disagree with tgull about is that the homeowner should call their bank to ask if they accept short sales. if you can name a bank that flat out will never accept a short sale i'd like to hear it. in fact, if you call and ask a ridiculous question like that, they will know you have no idea what you are talking about, and wont work with you whatsoever. every bank has accepted a short sale before. they might give you a very very hard time, and they might even tell you they don't accept short sales, but they are lying. no bank wants to accept a short sale unless they believe there are no other options for them either. Basically, if you can spell out to them if they dont accept the short sale the house is going into foreclosure, and they will get less money for the house as an REO then if they accept the short sale. If you can prove that point, no bank will say flat out they don't do short sales.

Keep up the education tgull!

gtull1

lauren- Nice to hear a short sales pro like you speak up! You make some excellent points, and I agree 100%. All lenders have accepted short sales. They don't advertise it, but as you stated precisely, they will do what is best for their financial interests. Often enough, a short sale is in everyone's best interest.

:O)

kevin

Hi..
Thanks for sharing your knowledge.

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