Although financial troubles have a way of following the same people around all of the time, sometimes, financial trouble finds a new victim. The unexpected happens and a short-term, temporary setback in finances turns into a prolonged agony of wondering which bills to pay, which ones to pretend you didn’t see, and which ones to pay in full. After a while, the credit card companies, your bank, and the utility companies no longer believe your promises that it won’t be long before you can begin making payments again. A foreclosure is imminent and you have no idea how you got there or where you go from there.
Fortunately, the simple fact that you have been threatened with a foreclosure doesn’t mean that you have to concede to one. In the first place, the government has placed specific guidelines to protect homeowners in the weeks before a foreclosure becomes a reality. However, if you are like most homeowners, the thought of a foreclosure has never even occurred to you and you have no idea what you can do to prevent it from happening to you.
If you want to save your home from foreclosure and your credit rating from ruin, you need to check into all of your available options to find the one that is best for you. Foreclosure help is only a phone call or Internet click away as you contact a bank, lending agency, or finance company. Your options include the refinancing of your existing loan, debt consolidation, and loan modification. Additionally, homeowners might have the option to partake of a short sale or a deed in lieu.
Since impending foreclosures must be publicly listed prior to the actual occurrence, the homeowner has time to strategize and see if he can make financial adjustments that allow him to avoid a foreclosure. The exact time period during which the impending foreclosure must be advertised varies according to the state in which the property is located.
The initial step when faced with a foreclosure is to notify the holder of the deed of your intentions. This is when you should attempt to negotiate a loan modification. In particular, you can request a change in the terms of your existing mortgage or loan. The deed holder is under no obligation to honor your request. In some cases, the request is granted, specifically because the deed holder would prefer repayment of the loan to foreclosing on your property.
A loan modification often involves some type of forbearance, which means that a postponement of the obligations of the loan is set in place. The deed holder or lender can grant a temporary stay on the balance of the principal and collect only the interest portion of the loan. Another option is for the lender to forego collecting the interest at that time in favor of adding it to the existing debt. In that case, once the repayment of the loan resumes, the monthly payments will be slightly larger than they were initially. Additionally, the entire monthly payment can be delayed for a specified amount of time.
The unpaid payments that have already occurred with the loan can also be added to the loan balance for repayment at another time. Forbearance policies vary according to the lender and the state in which the homeowner resides. In some cases, the lender might request a show of good faith including the repayment of at least one full monthly loan payment.
Another option that the deed holder can offer to the homeowner who is facing foreclosure is the refinancing of the existing loan. In this case, the terms of the loan are modified to create smaller, more affordable loan payments. In many cases, this will involve adding time to the term of the loan, thereby increasing the number of years left to pay on the loan. The refinanced loan might include a different interest rate or the same interest rate depending on the need for it. In very extreme cases, the balance of the principle and accrued interest might undergo some modification as well.
Additionally, the homeowner can shop around with other lenders in order to acquire a new loan with a competitive interest rate. Lowering the interest rate is a very effective way to lower the monthly payment. Plus, a new term or a change in the number of years for the loan also decreases the monthly mortgage payment. In some foreclosure cases, a simple but substantial reduction in the monthly debt is all that it takes to keep a foreclosure at bay.
The main goal is to reduce the monthly expense enough to allow the debt to become manageable. Coming to an agreement with the deed holder is one of the best options for preventing a foreclosure.
If you opt for debt consolidation, you can combine all of your existing debts into one simple and easy to pay loan. In addition to using the funds from this new loan to pay off your existing debt from your mortgage, home equity loans, HELOCs (home equity lines of credit), auto loans, student loans, and installment loans, you can also use a debt consolidation loan to pay off existing credit card debt. This typically generates a smaller monthly expenditure that is typically easier on the budget.
Important Terms To Understand
- Deed: a legal document held by the lender as security for the repayment of the debt incurred by the homeowner when purchasing the home.
- Lien: the legal claim against the property offered as collateral for the loan.
- Deed in Lieu: the turning over of a deed in lieu of the debt obligation. In essence, the deed is given to the lender instead of the repayment of the debt.
If all negotiation for loan modification and refinancing has failed up to this point, then the homeowner can offer a deed in lieu of the foreclosure to the loan holder. The deed in lieu is exchanged for a release from further financial obligation for the homeowner. The homeowner essentially turns over all rights to the property in question. Even though the homeowner loses his home, he avoids the stigma of having undergone a foreclosure.
This strategy helps to salvage at least part of the individual’s credit rating. A foreclosure remains on a credit history for a long time, reducing an individual’s credit score substantially. The negative impact of missed mortgage payments is much less than that of a foreclosure.
In some cases, the deed holder might request a short sale. This happens when the property facing foreclosure has decreased in value dramatically to the point that it is no longer worth the full value of the loan. In this case, the property is put up for sale and is sold at a price that is lower than the remaining balance on the loan.
A short sale, despite its depreciated price, is a viable option for the deed holder mainly because it avoids the costs that he would incur with a foreclosure. Even thought the home does not sell for the full value of the loan it does recoup a major portion of the debt.
If you are facing a foreclosure, remember that you have options. Take the time to explore them and avoid the stigma of a foreclosure on your credit history.