6 Tips from Mortgage Professionals to Help You Avoid Foreclosure

By Laura Agadoni · Aug 20, 2016 · Real Estate

6 Tips from Mortgage Professionals to Help You Avoid Foreclosure

Image courtesy of Flickr, NeighborWorks America

If you are serious about avoiding foreclosure, here are six tips that you should know.

If you don't pay your mortgage, you could eventually lose your house to foreclosure.

Everyone knows that.

But that isn't all there is to know about the foreclosure process. Even if you had some trouble paying your mortgage, don't give up hope. You might not lose your home. House foreclosures don't happen overnight. Although your lender could start the foreclosure process if you miss just one payment, that rarely happens, so time might be on your side.

If you are serious about avoiding foreclosure, here are six tips that you should know.

1. Lenders Don't Want Your House

Your mortgage lender is in the lending business, not the real estate business. If they don't get their money after repeated attempts, they might take your home. But what lenders really want is your money, not your house. So most lenders are ready, willing, and eager to work out a deal with you.

2. Do Everything You Can to Avoid Foreclosure

Not only will you lose your home with a foreclosure, your credit score will drop dramatically, making it difficult for you to get another loan or even to rent a place.

You especially don't want to go through foreclosure if you are in a state that allows deficiency judgments, a practice that allows lenders to pursue you for any money you owe. This happens if the bank sells your house at auction for less than what you owe your lender.

For example, if you owe $300,000 on your house at the time of foreclosure, and the bank gets only $200,000 for it at auction, you would owe the bank $100,000. Most states allow this, typically by wage garnishment or by levying your bank account. Check whether your state allows deficiency judgments here.

3. Keep Your Lender Informed

The tip most financial experts agree on to avoid foreclosure is to let your lender know right away if you are having difficulties making your mortgage payment. ''Tell them you are having difficulties, and explain why,'' says Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage. ''Lenders have several ways they can help you avoid foreclosure.''

Here are a couple of options that Fleming suggests you might want to discuss with your lender.

Ask your lender whether they will defer one or two of your mortgage payments until the end of the loan. This is called forbearance. That way, you have a couple of months without a payment.

Ask whether your lender will accept smaller payments, such as interest only, for a while. You would then recast, or re-amortize, your loan when the lower payments expire.

Bryant H. Dunivan Jr., a real estate and consumer protection attorney in Florida, says that courts usually look favorably on people who have reached out to their lender. ''It shows that my clients are trying to work with the bank.''

4. Understand Your Situation

Don't despair if you are having trouble making your mortgage payment. There are more options available to you than pay or lose your home.

''There are many ways to resolve a delinquency other than foreclosure,'' says Bruce Ailion, an Atlanta, Georgia, real estate agent, investor, and attorney. Methods he gives are the following:

  • Standard sale
  • Refinance
  • Short sale
  • Modification
  • Renting the property

Buy how do you decide which one to choose? ''Understanding your situation is critical to evaluating the direction to take,'' says Ailion. For example, Ailion says to ask yourself the following:

  • Do you have equity in the home, or are you upside down?
  • Do you want to stay in the home or move?
  • How much can you afford to pay each month?

If you want to stay in the home, for example, ''You may be able to restructure your debt,'' says Ailion. Talk with your lender to help you come up with a plan based on your situation.

Dunivan says, ''Loan modifications work if you've had a temporary setback but have the income to support a payment structure.'' You might have heard that it's difficult and time-consuming to get a loan modification. But, according to Dunivan, ''In the past, the banks would let the loan modification requests linger for a while, but banks have now become more efficient at processing them.''

If you can't refinance or get a loan modification, you might want to consider a short sale. ''I'm a big fan of short sales,'' says Dunivan. ''Short sales allow the market to correct itself, and lenders like them because they're netting something out of the transaction.''

The downsides to a short sale? One, you can't be attached to your home, and two, ''You'd need to get a waiver of deficiency to really make this work,'' Dunivan says. Otherwise, your lender could come after you down the road to collect the money they are out from selling your home for less than you owe.

Ultimately, it's up to the bank to decide whether they will grant your request to waive the deficiency judgment. Dunivan has found that people tend to get the waiver approved when there is a defense for not paying their mortgage.

Note: A few states, California for one, prohibit deficiencies after a short sale.

5. Contact a Bankruptcy Attorney

If none of the methods you've tried to save your house from foreclosure works and your house has gone into foreclosure, you still have another option to get out of it: File for bankruptcy, which will stop all collection activity.

''Up until the day the property is being sold, a borrower can file bankruptcy and stop the sale,'' says Ailion. ''In bankruptcy, it may be easier to get time to sell or refinance.'' Bankruptcy can delay the foreclosure proceedings for several months since it stops all your creditors from collecting their money. A bankruptcy attorney can help guide you.

6. Watch Out for Scams

When people are facing foreclosure, they are often vulnerable and fall victim to scam artists. The Federal Trade Commission has instituted a rule called the Mortgage Assistance Relief Services (MARS) Rule. This makes it illegal for anyone to collect upfront fees from a homeowner.

Dunivan warns of a common scam where people say they provide ''legal services'' and call themselves a ''consultation company.'' ''That is not a law firm,'' he says. ''What often happens is that these types of companies say that they got you a loan modification. They then have you make the payments directly to them.'' What's really going on is the scam company keeps your money and never pays it to your lender. By the time you catch onto what's happening, they shut down shop and can't be reached. ''If you are ever suspicious, call your bank,'' says Dunivan. ''If there is a loan modification for you, your bank will have a record of it.''

Conclusion

Just because you missed some mortgage payments doesn't automatically mean your house will go into foreclosure. You can take steps to help ensure this doesn't happen.

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