Sunday May 21, 2017

Stop Foreclosure

One of the worst experiences to go through can be a foreclosure. It's stressful, can ruin your credit, and is a financial nightmare.

Losing your home by way of foreclosure can also cause embarrassment as its made public that you failed to pay a debt.

Foreclosures make it incredibly difficult to purchase a home in the future as well. Nobody buys a home with the goal of going through foreclosure, so when it happens it can be intimidating and most people are not prepared for it. Luckily there are ways to stop foreclosure.

One way to help prevent the foreclosure process from the start is to notify your lender if you feel you are in danger of missing your mortgage payment.

This will help to delay the bank from issuing a Notice of Default against the home owner.

If you contact the bank ahead of time and let them know your situation they may be a little understanding. Just like you, they also don't want to foreclose on your home.

The bank may present you with one of these options:

  1. Forgiving a Payment: It's very rare that banks forgive payments but you may get lucky and they might forgive a couple of your payments if you can prove to them that you will be current after. The forgiven amount will be seen as income to the IRS though and you will likely pay taxes on it.

  2. Forbearance: Essentially forbearance is when a home owner and the lender come to an agreement to give the home owner some extra time to make their payment. The forbearance is an actual legal document that clearly defines terms of repayment. It lists the date in which the home owner has to be caught up with their payments before the lender begins the foreclosure process

  3. Repayment Plan: Banks may give you a chance to get caught up with your payments by adding on a little extra each month until you're back on track.

Alternatives to Foreclosure
  1. Sell The House: If you feel you're in danger of being foreclosed on, selling your home is a way to get rid of your mortgage obligation and you may even be able to make a profit depending on the housing market and the amount you owe on the property.

  2. Short Sale: A common alternative to foreclosure, a short sale involves selling your property for less than the amount that's owed on it. The catch with short sales is that the lender has to agree to this, and it's often a long process. Short sales also harm your credit. It won't do as much damage as a foreclosure would but it may make it a little more difficult to buy a home later on. Any uncollected amount may be forgiven by the lien holder but you may have to pay taxes on it.

  3. Deed in Lieu of Foreclosure Agreement: This is another alternative to foreclosure. The deed in lieu of foreclosure agreement involves the home owner signing over the deed to the home to the lien holder. In return for the deed, the lien holder agrees to forgive the debt which stops foreclosure. Some people say that the deed in lieu of foreclosure agreement harms your credit as much as a foreclosure does.

Government Programs

Back in 2009, the government partnered up with banks and other financial institutions and started the Making Home Affordable program to help struggling home owners avoid foreclosure. These series of programs included loan modification programs to help home owners get caught up on their payments.

By restructuring mortgages, the goal was to help decrease some interest rates or spread loans over a longer period time to decrease monthly mortgage payments. The Home Affordable Modification Program (HAMP) is one of the most popular efforts to help stop foreclosure.

The aim of HAMP is to reduce mortgage payments to 31% of home owner's gross monthly income. Just like all government programs, HAMP is not available for everyone. You have to meet certain qualifications such as proof that you are going through a financial hardship such as divorce, unemployment, or medical issues.

So as you can see, if you're struggling to make your mortgage payments, foreclosure is not a necessity and there are ways to stop it. You'll want to exhaust all of your options before even considering foreclosure because the damage it does to your credit is very difficult to repair and causes a lot of people to eventually file bankruptcy.

Look into government programs, foreclosure alternatives, and keep in contact with your lender and you may be able to stop foreclosure.

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