Stop foreclosure NOW!
Going through a foreclosure can be both a scary and embarrassing experience. Most people we encounter are distraught from having to deal with debt collectors and feel so ashamed that they are reluctant to talk about it openly with family members or even professionals who want to help. It’s unfortunate how many people we have come across who have ended up losing their home to foreclosure because their strategy for dealing with the situation was to simply cross their fingers and hope.
If you are facing foreclosure, we want to first thank you for visiting our site and let you know that you are doing the right thing in educating yourself about the situation. We understand that you have lot to learn and a short amount of time to learn it in. Educating yourself is the first and most important step you can take in minimizing your chances of going through foreclosure and maximizing your chances of going through this experience unscathed.
There are a myriad of ways that unforeseen hardships can change the joy of owning a home into an incredible burden. Maybe you've lost your job, or have unexpected medical bills beginning to pile up, or your monthly mortgage payments have increased beyond your current budget. No matter what the cause of your troubles, ignoring the problem won't help, it will only make it worse. You must act quickly to resolve the issue.
The following are a few examples of how to stop a foreclosure on your home:
1) Look for Other Sources: Collecting money from friends and/or family
Most individuals who are facing foreclosure can no longer afford to make payments on the house. While this may seem rudimentary, we want to make it clear that simply catching up on past payments usually isn’t a viable long term strategy. This can simply prolong the inevitable and merely delay the foreclosure. We wouldn’t want to advise you in this strategy if, in 6 months, you end up back where we started only now you have the added burden of having lost borrowed money from those who are close to you.
Recently, as the Federal government’s intervention of the marketplace increases, there is a false notion circulating that foreclosures are going to be stopped and that the money will be provided to homeowners to help catch them up on overdue payments. Currently, the size and scope of such an intervention is unknown and it should not be relied upon. It is best to move forward acting as if this kind of intervention is not going to occur.
2) Renting the property
In rare cases, the amount of money that can be garnered from renting the property will exceed the current payments on the mortgage. Renting out the property allows you to keep the title to the home and acquire any long-term equity gains. Unfortunately, simply renting the property doesn’t mean you get caught up on the payments that are already missed. In this case, you have one of two options; either borrow the money from friends and family or negotiate with the bank to get them to stall the foreclosure process as you continue to pay the mortgage and slowly catch up on past payments.
Incidentally, banks do not want to foreclose and are happy to work with lien holders when given a chance to do so. However, you should know that if there is an appreciable amount of equity in the property, banks are much less likely to be so helpful.
To maximize the amount of rent your property can garnish, you should consider renting out rooms separately.
3) Owner-financing the property / Wrap around mortgage
This is a slightly more sophisticated solution in which you become the bank and sell your property to a third party. The third party will acquire the deed to the property, but will have a separate mortgage with you. There are many different ways of structuring this transaction, but the general strategy is that someone gives you a non-refundable down payment, makes monthly payments, and in one to five years, has the ability to refinance the property absolving both the bank’s mortgage with you and your mortgage with them.
You can use their down payment to catch up on the overdue payments and their monthly payments to continue pay off the mortgage. In fact, if they are paying more, you can even make some monthly cash flow. Again, it is a more sophisticated solution, but it can be a viable option.
Incidentally, this kind of transaction is currently being frowned upon because many people assume that it is illegal. This is not true. It is perfectly legal and there are many experienced real estate attorneys structuring them every day.
4) Selling the property outright
This is the strategy most homeowners facing foreclosure seek. However, there can be some unexpected pitfalls that you need to be aware of as many homes that go up for sale still end up being foreclosed upon.
Most homes that are on the market that are facing foreclosure don’t get the necessary time to get the property in its best possible condition. As the market turns into a buyer’s market, and each buyer gets exposed to more properties, the condition of the property starts to become much more important. If you are unable to get your house in its best condition, it must be counteracted with a reduction in price to ensure a sale.
Time. In a typical real estate transaction, it can take up to 120 days from listing to the property to actually closing the transaction. There is a lot of time that occurs between marketing the property, finding a buyer, negotiating with a buyer and waiting for financing. When you cannot afford to spend four months waiting for your property to sell, more dramatic steps must be taken to ensure a quick and easy transaction.
Ego. Unfortunately, we’ve met homeowners who have resisted selling their property and lost their property to foreclosure because they “just didn’t want to give it away.” It must be understood that the kind of buyer who wants to buy a pre-foreclosure property is doing so because they want a deal. Their asking price will usually always be less than what you are asking for and they will ask for terms that will be in their best interest, not yours. While it is very difficult to lose your home, a home in which many great memories are associated with, during this time it is paramount to keep a cool and rational approach to handling the situation. This is one of the primary reasons why you should have a real estate professional on your team. Please understand that you are typically choosing between a bad situation and a worse situation.
5) Short Sale
When it comes to selling a property, most homeowners find themselves in a precarious situation because there is not enough equity in the house to pay for all of the necessary closing costs. A short sale is a type of transaction in which the bank helps facilitate a transaction by reducing the amount owed to them and by paying all of the closing costs.
There are certain rules and guidelines that must be followed as each bank has their own way of handling these cases, but the overall concept is universal. You should understand that every time a bank forecloses on a property, the amount of money they can lend gets dramatically reduced. They do not want to foreclose and would much rather take a small loss and get the property sold quickly.
Bare in mind that you still face the same problems you would face if you were to sell the house traditionally. This means that you need to find a savvy real estate professional who not only knows how to successfully market a property, but also one who knows the ins and outs of the short sale process.
6) Contact Your Lender
If you have reviewed all possibilities of creating cash-flow to pay your mortgage, then it's time to reach out to your lender. Do this as soon as possible! Your ultimate goal in contacting your lender is to create an agreement that will alter your mortgage so that foreclosure proceedings can be stopped before they are finalized.
Review the Options:
After contacting your lender, or in some cases the servicing company that handles the loan for an investor, you may have other options available. Typically lenders are not required to make adjustments to your loan, but many will consider it a viable option--one that benefits the lender and you and can include refinancing.
Possible options to discuss with your lender include:
- Deed in Lieu of Foreclosure - In this option, your lender may accept the return of the title to your home, but beware that the lender may still sue for loss and report any uncollected funds due to loss to the IRS as taxable income to you. This option may have negative effects on your credit report.
- Claim Advance - If you have a private mortgage lender, they will often provide a cash advance to bring your loan payments up to date. Sometimes this money is interest free and may not have to be repaid for years.
- Re-Amortization - In this option the payments you have missed are added to the balance of the loan, making your account current. Your debt will increase and your monthly payments will be higher unless the lender also agrees to extend the term of the loan.
- Short Sale - Considered by many one of the best options available to avoid foreclosure, the short sale is an increasingly popular option. In this option, the lender accepts less than what you owe on the property, relieving the homeowner of debt. Lenders are often willing to accept a short sale because it greatly reduces the expense and time involved in foreclosure proceedings. In most cases, a short sale does less damage to your credit than a foreclosure. A qualified REALTOR® will be exceptionally helpful in completing the short sale process with you.
One note of warning, beware of any company claiming that they guarantee they can stop any foreclosure no matter what you owe. The Federal Trade Commission recently compiled a list of warning signs that a "foreclosure fixer" company may be a scheme. Those warnings include any company that requires you to pay for services upfront, tells you to send mortgage payments to it directly, or asks you to turn over the property deed, or tells you to avoid contacting your lender directly.
Due to the added pressures of stress that occurs as bill collectors start to mount and the selling process gets more problematic, many homeowners get to a point where they just want to throw in the towel and succumb to a foreclosure.
This really should be your last option.
During a foreclosure, there is absolutely no chance of you getting any money out of the situation and your credit will be seriously marred for the next seven years. Also, when the bank ultimately sells your house at a discounted price in the future, you will have that loss billed to you as income. Incredibly, you will have to pay income taxes on it.
It is a very nasty situation and one that won’t just go away. Please do everything you can to avoid it. Whatever it takes, it will be worth it.
Remember time is of the essence!