Life can be unpredictable. While change can be good, sometimes circumstances arise that you didn’t see coming but you have to deal with immediately. Circumstances like receiving a Notice of Delinquency in the mail. Maybe you lost your job or had unforeseen medical bills or your personal finances just took a dive and now you are looking at the bank foreclosing on your house.
When you bought your house, you most likely signed a mortgage. That is an agreement on your part to pay back your loan according to the terms set forth from the beginning. If you stop making payments for any reason you have failed to deliver on your end of the contract. The lender has the right to take back your home and attempt to recover the money they loaned you by selling the property.
Missing a payment by a day or so is usually not much of a problem. Lenders are human too and most of them offer a 15-day grace period. There may be a late fee, but it beats losing your house. However, if you haven’t paid your mortgage for an extended period, the lender will probably start foreclosure proceedings. It can take anywhere from 2 to 12 months to complete, depending on where you live.
It’s a long and involved process for the lender, and this may give you time to take action and hopefully save your home. Here are three things you can do to get the best possible outcome when facing foreclosure.
Make sure you know how you got in the situation in the first place.
Know what is happening and what the process includes going forward
Read everything the lender sends carefully. Often, late payment notices will contain info on foreclosure prevention options.
Familiarize yourself with the foreclosure laws in your state.
List your options.
Foreclosure is a lengthy and involved process. Your lender would probably rather avoid it if they think there are other options, so they often offer them.
Refinancing: Where a lender offers you a new loan – with new interest rates and terms – to cover the missed payments, plus what you owe on the home. This doesn’t affect your credit negatively and could help lower your monthly payments.
Repayment Plan: Where you and your lender work out a plan that works in your budget, so you’ll restart making payments. Over a specified period of time, you’ll work to continue making payments and also make up the late payments.
Forbearance: A forbearance is when the mortgage company agrees to temporarily suspend your mortgage payments for a specified period of time. These deferred payments will be tacked on to the end of your loan.
Loan Modification: In this case, the mortgage company will change the terms of your existing loan – amount due, interest rate, length – to make your monthly payment more manageable.
If you don’t qualify for any of these options, or your lender simply doesn’t offer them here are a few other things to think about.
Find a counselor: There are federal agencies in every state that work with lenders to secure financial options for struggling borrowers.
Consider filing for bankruptcy: There are two types of bankruptcy: Chapter 7 and Chapter 13. The type you file for will depend on how much income you have.
– Chapter 7 will wipe out your debt by allowing a court-appointed trustee to sell off any of your non-exempt property to pay back creditors.
– With Chapter 13, you get to keep all your property. However, you have to pay back all or a portion of your debt through a repayment plan.
Think about selling your home.
It may seem like giving up because, ultimately you are still losing your home. But you are losing your home without having a foreclosure on your record. And avoiding any effect this will have on your future credit and ability to buy a new home.
Depending on how far along the foreclosure process is, you might have to get permission from your lender. However, if this option is available to you you can usually make a fast sell to an investor. You may have to sell it at a slight discount, but you usually won’t have to make any repairs, you will sell it fast, and investors often pay any closing costs and you won’t have any agent fees.
The best defense is still a good offense. If you want to avoid a foreclosure, then you have to take action. By educating yourself, and knowing your options you could easily create the best possible outcome for yourself.