Foreclosure is the legal action that your financial institution can use to take back your home when you miss your monthly mortgage payments. When this happens, you lose your house, which is sold at a Public Auction. Foreclosure will seriously affect your ability to qualify for credit in the future, so you should avoid it if at all possible.
There are several ways of avoiding foreclosure and dealing with it when you receive the foreclosure notice. First of all you should never ignore letters from your lender. When you have problems making payments contact your lender right away. Explain your situation and provide them with your financial information. If you qualify, your bank can offer one of the solutions explained below.
If you had temporary financial problems and you have recovered but your net income is now less than it was before the default, you may qualify for refinancing or mortgage modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable amount.
Another alternative in case of temporary problems may be a special forbearance. Your lender may be able to arrange a repayment plan based on your financial situation. They may even provide for a temporary reduction or suspension of your payments. In short, your missed payments may be put at the end of the mortgage loan period. You may qualify for this if you have recently lost your job or your source of income or if you had an unexpected increase in living expenses. You will have to provide your lender with proof that you would be able to meet the requirements of the new payment plan.
Partial claim is another option. Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current. When your bank files a partial claim, HUD will pay your lender the amount necessary to bring your mortgage up to date. You must execute a promissory note, and a lien will be placed on your property until the promissory note is paid in full. The promissory note is interest-free and will be due if you sell or leave your property, or when your mortgage matures. To qualify for this method your loan must be at least 4 months delinquent, and your mortgage may not be in foreclosure. You must prove that you’ll be able to begin making full mortgage payments.
You also may want to try a pre-foreclosure sale or a short sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify for this solution if the amount of mortgage you owe is significantly lower than the Fair Market Value of your house. Due to the nature of this transaction, you may not be able to get a full price for your property and the lender must agree to take a loss. In most cases, you can expect less than the market value of the house. Remember, it is not a “dream deal”, but considering the circumstances it may be your best option. Money received from such sale will allow you to pay off the lender(s). If you decide that a pre-foreclosure sale is your best solution, please contact me immediately regarding listing your home for sale. Time is crucial and we must get started right away. I understand the urgency of your special circumstances and will work diligently to get your home sold within your appropriate time frame.
During times of distress, there are many scams that prey on people who have fallen on hard times promising to solve their problems if you would sign over the title to your property to them or pay them a fee up front or sign a Power of Attorney. It is illegal for anyone to ask you to do this and you should stay away from these people. NEVER SIGN YOUR TITLE OVER TO ANYONE INCLUDING A POWER OF ATTORNEY and NEVER PAY ANYTHING UP FRONT.