Ways to Stop Foreclosure

Money/Finances - Mortgages
By: Wasatch    
23-Sep-2013

Introduction:There are many ways to stop or slow foreclosure. The only 100% sure method is to never miss a payment and abide by all the terms of your home loan. Once a payment is missed the terms of the contract has been violated and the lender has the right to foreclose. During the foreclosure process, a borrower can bring all payments current and pay any penalties and interest. This will also reinstate the loan to the original terms. For most borrowers facing foreclosure, there is a temporary or long-term financial setback, which makes keeping up with current payments or paying multiple payments to catch up the loan very difficult. In this situation, timely communication with your lender and consultation with experts becomes vital.
Borrowers facing foreclosure are often vulnerable to fraud and scams. A borrower should never sign over control of the property to an "investor" or sign any binding agreements without thoroughly investigating them and exploring all options. When working with experts like Realtors, attorneys, and mortgage brokers it is important to understand that each have a separate area of expertise. All can be very effective, but keep in mind how each gets paid when weighing their advice. Realtors can have a very broad knowledge of real estate and local markets, but only get a commission from equity in the home when they sell a home, or negotiate a short sale with a lender. Attorneys know local foreclosure law and legal options, but only get paid for billing hours by giving legal council, filing a suit, or helping a troubled homeowner file bankruptcy. Mortgage brokers are paid for helping borrowers refinance a loan, or take out a second mortgage to have cash available, but do not profit from a sale. Investors make money when they buy a house below market price, then rent or resale at a profit. All these specialists can be a great help in stopping foreclosure and helping borrowers get their real estate finances and credit back in order, but rely on them for the option they specialize in after reviewing all options available.

  • 01

    Begotiate a Payment Plan

    Negotiate a payment plan or workout agreement with your lender:
    When behind on payments, timely communication with your lender is important. Ignoring phone calls and letters will not solve the problem. Lack of contact can force a lender to begin or accelerate foreclosure to protect their financial interest and shareholders rights. Lenders can put off filing a notice of default if they know a financial setback is temporary, or feel the borrower is making good faith efforts to fix the default. Lenders may allow borrowers to skip one payment. They can add payments missed to the end of the loan schedule, or modify the loan by freezing adjustable interest rates. They may allow a long term repayment of payments missed by adding a fixed amount to monthly payments for a time. For example if monthly payments are $1,000 you may be allowed to pay $1,100 a month until the missed payments are paid to current. They may recommend a loan modification program or a short sell as an alternative to foreclosure.

  • 02

    Loan Modification

    Until recently, modification of the terms of a loan was rare for residential real estate borrowers. With the decline in prices and bursting of the housing bubble, banks are faced with too many foreclosures. The foreclosure process with legal fees and time periods of not receiving interest on a loan are costly for lenders. Holding homes in inventory is a liability that also does not produce income. It often makes more financial sense for lenders to modify a loan rather than foreclose. The federal HAMP program gives lenders and borrowers incentive to modify loan terms. Banks who accepted federal bailout money are required to participate in modification programs if the borrower fits certain guidelines. Borrowers must have sufficient income to continue making payments at the modified rate, but also not have so much income they should be making payments already agreed upon in the original loan. Usually if a loan is modified it means a reduction of the interest rate to lower monthly payments. It could also mean freezing adjustable rate mortgage interest or changing an adjustable rate to a fixed rate. Modification may be extending a 15-year term to a 30-year term. In rare cases, lenders may forgive part of the principal amount. If facing foreclosure ask your lender about loan modification programs.

  • 03

    Short Sale

    If you would like to sell your home, but the current market value of the home is less than what is owed on the mortgage plus sales costs (Realtors commission and closing costs). You may consider a short sale. A short sale is when the lender approves the sale of the home, and will accept less than the amount owed as payment in full. Lenders are not required to accept a short sale, but will if they will net more by allowing the sale than through foreclosure and resale. Lenders usually require property to be listed with a Realtor to insure the home is well marketed, and achieves the best sale price possible. Borrowers will not walk away with proceeds in a short sale. The bank is losing money. They will however be in a better position to buy a home again than if they went through foreclosure. Borrowers credit rating recovers quicker and homeowners may be able to qualify much sooner for a new loan than if they went through foreclosure.

  • 04

    Refinance

    In some cases, a borrower facing foreclosure may qualify to refinance a loan and get better terms. If a borrower has an adjustable rate mortgage, they may be able to qualify for a loan that is fixed at a lower rate than the current loan. Lowering debt by refinancing may lower monthly payments enough to make a loan more affordable and avoid foreclosure. Sometimes taking out a second mortgage to pay off high interest debt can be beneficial. It may raise the amount owed on the home, but lower monthly debt by replacing high interest credit card debt with low interest home mortgage rates. Lowering monthly debt payments may allow a borrower to keep a home. Paying down debt may also improve credit scores to allow a more favorable interest rate through refinancing.

  • 05

    Rent Your Home

    In some markets, a borrower may be able to rent a home for enough to cover monthly mortgage payment. If you can move to a cheaper home or apartment and rent your home for enough to make up the amount needed to make payments, you may be able to keep your loan current and avoid foreclosure until your financial situation improves, or the housing market improves so you can sell the home.




Final Thoughts

I am a licensed agent in Utah. If you are buying or selling in Utah let me know.
John VanCott
Equity Results
801 836-4795




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