I'm in Foreclosure...Now What?

Who hasn't gotten behind on a bill in their lifetime? I know I have – I think I hear my phone ringing now. It is something that happens to the best of us if you live long enough. Everyone is prone to go into avoidance mode, right? Stop answering our phones, stop opening our mail and just shutting ourselves down until we can afford to deal with it--or until things are so bad we don’t have a choice but to deal with it. This solution may work termporarily for a credit card or cable bill. But when it comes to your house, your home for your kids, your shelter – and for many people the largest single investment they will ever make – the situation is very different. Not dealing with it means eventually losing your home. So if you ever receive a notice of default from your lender, the most important piece of advice that I could give you is – no matter how difficult things may seem at the moment – don’t avoid dealing with it. The earlier you start to explore your options the better.

A few things to keep in mind.

1. In most states, it can take anywhere from 6 to 9 months--and potentially up to one year--to foreclose on any given property. That gives homeowners a long time to fix their financial problems.
2. It will cost a lender more money in legal fees and time to go through foreclosure proceedings and resell your home than to work out a payment plan with you. Lenders are not in the business of buying and selling real estate – they loan money to make money. They know – and you should know – it is better for them to work out a solution with you than to foreclose.
3. You have all the way up until the minute your home goes for sale on the court house steps to pay your late payments and fees as established by the lender and save your home. Like I said before – that can take up to a year.

So what are your options?

Did you know roughly 50 percent of homeowners who enter into foreclosure never contact their lender—the party most able to help them stay in their homes? And we wonder why the foreclosure rate is so high. One of the key things you have to do is talk to your lender or loan servicer. (A loan servicer is usually a company who gets paid to collect payments and deal with collection issues on behalf of the lender). In talking with your lender/servicer, the following are some options you may want to consider.

§ Forbearance – If you call early enough your lender may let you make a partial payment, skip a payment, or add your late payment(s) to the end of your loan. The key is having a plan to catch up. If you are like many of us waiting on that tax return, let your lender know. You may be able to protect your credit score by speaking with your lender while waiting on Uncle Sam.

§ Repayment Plan – The lender may also work out a repayment plan in which they may divide the overdue amount over –for example 6 months - and let you pay the overdue amount in increments with your regular payments.

§ Loan Modification – The lender may agree to change the terms of your mortgage to help you avoid foreclosure. They could switch you to a fixed rate loan, give you more years to pay off your loan or even forgive part of your loan. They could even add your missed payments to the loan and increase your monthly payments to cover the larger loan. Or they could do some combination of these options. Knowing what you can ask for so you can best find a solution to suit your situation is key.

§ One of the least viable options if you are in a cash crunch is Reinstatement – where you pay all past due payments in a lump sum by the end of the forbearance period worked out with your lender. If you can borrow from a friend or family member or you come into unexpected cash, this may be an option.

§ Finally, there is “Deed In Lieu of Foreclosure.” In this option, you vacate the premises and give the deed to the lender. The major drawback is obviously that you lose all of the equity you have built in the home. That’s a tough pill to swallow. But the upside is that it saves you from having a foreclosure on your credit report, making it MUCH easier to get a loan and buy a new home once you get your finances straightened out.

§ Last but certainly not least is the option to sell your home. Selling your home may allow you to recover some of your equity so that you can move into a less expensive home with a more affordable mortgage in a year or two. But what if you bought your home over the past one to two years and the value is less than what you owe? That's where we get into what is called a Short Sale. Your Realtor can negotiate a price with the lender where the lender will accept LESS than what you owe. And do you remember what I said about the comfort of “avoidance”? Well, your Realtor can help you avoid almost every aspect of personally dealing with the transaction while at the same time providing a solution for your dilemma. Once you list your home with a real estate agent and give him or her permission to work with your lender, aside from gathering documents and responding to inquiries, your work is pretty much done until it is time to accept a contract and go to settlement.

So that’s the long and the short of it. If you would like free, anonymous counseling call 888-995-HOPE. Many major lenders such as Bank of America, Sun Trust, Wells Fargo, Wachovia, etc., are working in partnership with HUD to help homeowners avoid foreclosure but you have to have the courage to ask for help!