Avoiding foreclosure means that you have to take resolute action, because the only way that you will eventually be foreclosed upon is if you do nothing at all. So, unless you are one of those people who had no business even getting the loan to start with, do not hide from those scary letters in the mail. Do not ignore the ringing telephone.
Open communication with your lender
The first thing you can do to prevent foreclosure is, very simply, communicate. Communicate early and often with your lender until you are current on your payments. Lenders are people too, and if you are honest with them about why you are late on your mortgage payment you increase your chances that they want to work with you to resolve the situation.
Communicating prevents about 80% of potential foreclosures all by itself.
Avoiding foreclosure means that you have to tell your lender that you were laid off. Tell them you were slammed with medical bills that you believed your insurance was going to cover. Tell them you are the victim of identity fraud and you had your bank account cleaned out by a crook.
Just communicate and be very honest about your predicament. Put away your pride and tell your lender all the details of how bad things are for you.
Loss mitigation departments help prevent foreclosures
Next, if you are more than 30 days behind, contact your lender’s Loss Mitigation Department. All lenders have such departments and they employ them for the specific reason of not losing loans and their interest payments.
These departments advise borrowers on what their payment options are. Sometimes they are combined with the collections department, so if you have to contact them do not panic if you find yourself talking to a collection agent.
Overview of stop foreclosure solutions
Lenders have many ways of working with you to prevent your being foreclosed on. Some of these options do include selling your home, but that is still not foreclosure and you get some benefit out of the sale.
This list of prevention methods includes some where you avoid foreclosure and keep your home and a second category where you sell your home in order to prevent foreclosure.
1. Avoiding foreclosure and keeping your home
This is obviously the preferred method for avoiding foreclosure of most homeowners in financial trouble.
- Communicating with your lender – We discuss it above and in the previous avoiding foreclosure section.
- Reinstatement – You are completely caught up with one lump sum payment by such and such a date.
- Loan forbearance – You pay less than your normal payment for a temporary period and the lender agrees to accept this. Go to the mortgage forbearance discussion to learn more about it.
- Repayment plan – You and the lender agree to divide up your past due amount into equal installment payments to be made over a period of time; often these are added onto your normal mortgage payment until you are caught up.
- Loan modification – A completely new mortgage program for the amount of principal you still owe. Go to mortgage loan modification for more details.
2. Preventing foreclosure by selling your home among other methods
This is not the ideal strategy, but at least it avoids the upheaval of the foreclosure process and allows you to keep a better credit rating.
- Short sale to prevent foreclosure – You’ll use the proceeds to pay off all outstanding principal and keep the rest; if you can only get an offer for less than what you owe, the lender may still accept it and consider it a settlement by taking all of the sales proceeds. Elsewhere we discuss the foreclosure short sale solution in more detail.
- Deed in lieu of foreclosure – You voluntarily give your home to your lender and they do not foreclose; they usually also give you a certain amount of time to move out. Elsewhere we discuss the deed in lieu of foreclosure solution in more detail
- Assumption – A deal wherein a qualified buyer takes over your mortgage and the payments.
3. More foreclosure solutions and options for you
- FHA loan options – Ask your lender about these if you have an FHA loan.
- Chapter 13 bankruptcy – Elsewhere we discuss the chapter 13 bankruptcy in more detail.
As you can see, a warning notice of foreclosure is not the end of the world. You have many options left for avoiding foreclosure. The sooner you start reviewing and applying realistic foreclosure solutions the more chances you have of avoiding foreclosure once and for all.