Saving Your Home.
What to do when Foreclosure looms:
A Survival Guide
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A Survival Guide to Foreclosure


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When you stop paying your mortgage, your lender, the bank or mortgage company, will ultimately start foreclosure proceedings against you. It means the holder of your mortgage will secure his interest in your property by taking the house away from you. In other words, the lender will repossess your house. How many months you can be in default, depends on the lender. Usually between one and three months, since giving you notice, arranging for the banks lawyer and arranging an auction sale will take some time. The sequence is usually governed by State Law. Technically, the moment you have not paid the mortgage installment on the due date, you are in default and the property is at risk.

If in a forced sale, the market value of your home is less than the amount you owe on the mortgage, the lender can apply for a deficiency judgement, demanding, with a court order, that you reimburse him for the amount of the shortfall between the proceeds from the sale of your home and what you owe to the lender.

Both proceedings, foreclosure and deficiency judgements, will have a serious impact on your credit worthiness and your ability to finance any purchase of a property in the future. It will also stay on your credit record for at least seven years. This, in a tight job market, will have a direct impact in your ability to land a new job.

To avoid Foreclosure, these Steps you have to take immediately!

When you have a problem making your payment, call your lender immediately and then follow the call up with a letter. Explain your situation clearly. Do not delay writing this letter! This letter has to include
  • All financial information about your loan/mortgage,
  • Your account number;
  • The monthly payment amount you have to make and the date on which it was due;
  • The reason why you cannot pay, and
  • Information about your personal finances, like your income and expenditure.
  • Act now and do this immediately!
Do not, under any circumstance, abandon your home or move out of your home. The lender, and any other source of assistance will stop helping you, if you move out of your home!
Contact a HUD approved Housing Counseling Agency! Their offices are local and can be found in most larger communities. Arrange an appointment with a housing counselor to explore your options. Technically, they are a valuable resource and are generally free. The advantage of using them is that they are, by and large, well informed about services and programs offered by the Government as well as private and community organizations. They often also offer credit counseling.
Do not sign anything, you do not understand fully. Get legal advise from a competent and neutral person! Remember, signing over your deed,, does not necessarily relieve you of your obligation to your lender.

If your loan is a VA guaranteed mortgage, do the same and call the VA office closest to you.


How to handle people who want to take advantage of you!


The key is not to panic and not to fall for people offering quick solutions and scams. Because, when you are in a foreclosure situation, the world is full of people who offer "to help"......."if you only sign here.........but it has to be done quickly, otherwise the opportunity is gone!"...... Some of the people working these scams, call themselves foreclosure or credit counselors, usually offering to perform services for a fee. A few precautionary thoughts below should help you avoid the scammers:

When people come to your house and make promises, get those in writing on a signed piece of paper, not on some photocopy. Have them send you a signed letter, explaining what they promise. Then check it out with your lender and HUD housing counselor.
Do not sign anything, especially not "on the spot". Always mull over things two or three days, while you check them out as suggested below. Do not let yourself be put under pressure by people who could exploit your vulnerability. Do not negotiate on the "door step". One of the favourite tricks of the scammers is that they are not coming into the house ("my supervisor does not want that!"), but urge you, to sign something quickly! DO NOT FALL FOR THAT! Your house is important to you, and you cannot make deals about it, on your door step!
Check everything with a lawyer,your HUD housing counselor and your mortgage company, before entering any deal that involves your house. You could lose the house and still be liable for the remaining mortgage.
Check out the agent, counselor or whatever other euphemism the people use to describe themselves, with the State Attorney Generals Office, the Better Business Bureau, the local Real Estate Commissions and the local District Attorney's Consumer Fraud Section. Even though, Better Business Bureaus or the local Real Estate Commissions vary greatly in the quality of their knowledge and are not always helpful or knowledgeable, they might have heard of scams that make the "local rounds". The key is never to rely on a single source of information.
Do not make assumptions about a formal release from your mortgage liability. If you have a question, make sure, you put it in writing. Do not negotiate of get information on the phone without confirmations in writing. Then make sure that your understanding of the status quo is confirmed by the mortgage holder. Do not rely on what third parties, except qualified legal experts that are in your pay, tell you about process and how they can solve the problem. You may be able to renegotiate some terms with the original mortgage holder, such as the remaining time to maturity of the mortgage and, maybe even interest rates.


A few Alternatives that you could explore with your Lender


Because current numbers of foreclosures are extraordinarily high, lenders might be willing to do things outside the options which are normally open to you. Remember, mortgage lenders want performing loans, not properties on which they will spend large amounts of money to secure them, and sell them off.

Try to renegotiate the mortgage terms. This will generally be possible, when the original lender still holds the whole, or a residual value in the mortgage. If the mortgage has been sold on, this will be more difficult. But under present circumstances this might be possible.

Points of negotiation could be

  • The length to maturity (i.e. the time between now and when you have paid off your mortgage). Often you can extend a 15 year mortgage to 30 years, though at this point it is rare to find banks that extend mortgages beyond 30 years.
  • The rate of interest paid on your mortgage.
  • You might suggest to the lender that you continue to pay interest at a new reduced rate, without paying back principal for a certain number of years (say five). And then renegotiate again after at the end of that period.
  • Do not agree to prepayment penalties.

See that a new mortgage agreement is drawn up, redeeming the old mortgage and replacing it with a new one, rather than agreeing to an amendment of the old agreement. The important issue for you is that you have negotiate payment terms which you will be able to fulfill.

One of the more traditional options is Forbearance Relief: Your mortgage holder may be willing to arrange a payment plan which will bring your account current in a relatively short period of time. This implies that your old mortgage continues with a temporary payment modification. This usually only works if you have a single mortgage on your property.
You could try to negotiate with the lender to stay in the house, pay what you can afford, and attempt a Pre-foreclosure Sale. This requires a market in which you can actually sell properties. It would avoid the effects of foreclosure on your credit history. Although, the lender has a non performing loan, he does not have an empty house and someone else will make the effort and pay the costs to sell the house.
There is also the option of a Deed-in Lieu-of Foreclosure. This means you give the property to the lender in return for the full redemption of the mortgage. For this to work, you cannot have a second mortgages or liens on your property. State law may also affect this option. Therefore, obtain a lawyers advise!
You might, under current circumstances, negotiate a moratorium on repayment for a limited time period. Although, the mortgage holder has a non performing loan, if you can show to him that your distress situation is temporary and that there is an end in sight within a reasonable time, he might be willing to look at this option. You might have to pay rent, which does not count towards your mortgage payments. Remember, at this time most mortgage lenders, provided they hold your mortgage are willing to make any reasonable deal that does not have a high risk of writing off a large proportion of their mortgage.

The key to avoiding foreclosure is to contact the mortgage lender as early as possible, so that you can work out arrangements which minimize the risk to you losing the home and, for the lender, most importantly, of foregoing part or all of the money he advanced you.

Do consult a lawyer or a HUD approved housing counseling agency on anything you do with your home and the associated mortgages!

Good Luck!

*

Source: This page is partially based on material from the US Department of Housing and Urban Development


Here is some reading that will be helpful. Remember, the more you know about the whole process of foreclosure, the better you can handle the steps and deal with the people, who are your adversaries!

Some essential Books from amazon.com

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