Avoiding Foreclosure on your Home

If you are finding it difficult to make your mortgage payments, or if you worry that you may not be able to do so in the future (such as if your adjustable rate mortgage or ARM is about to reset), then the best time to take action is now. It is possible to avoid facing foreclosure, but the sooner you act to protect your home and your finances, the better.

Of course, before we can learn how to avoid foreclosure, we must first learn exactly what it is. Foreclosing on a home is the situation in which a mortgage lender, such as a bank, sells or repossesses a home from a borrower because the borrower failed to stick to the terms and conditions of the loan agreement. Simply put, it occurs when borrowers cannot make their payments.

There are two main types of foreclosures: foreclosures by judicial sale, and foreclosures by power of sale. Both forms result in the sale of the property, with earnings used to pay off the mortgage, then any other lien holders, then the mortgage borrower if anything remains. The difference between the two, is that the former is a legal action that is supervised by a court, while the latter is legally unsupervised.

No matter what form of foreclosure is used, the results largely are the same for the mortgage borrower: the loss of one’s home and the title of the home, as well as heavily damaged credit.


If you are feeling unsure about payments

If you are less than confident about your ability to meet your mortgage payments, then there are two key actions that you must take as quickly as possible: (1) contact your lender to explain your concerns, and (2) seek assistance, such as from a credit counselor, to tweak your budget and eliminate other costs.

If you are having trouble in the short-term

The most common reasons cited for an inability to make mortgage payments include job loss or a decrease in hours, illness or a death in the family, and divorce. While these situations all can present very serious financial strains, they also all represent somewhat temporary scenarios that should get better with time. If you need some sort of an adjustment to your mortgage but expect to be able to make full payments in the future and thus keep your home, then there are several actions that you can take to avoid foreclosure.

Speak with your mortgage lender as soon as possible about your options for avoiding foreclosure. The most common include:

Forbearance. During forbearance, your lender will allow you to reduce or temporarily cease payments until your financial situation improves. At that time, you will have to come up with a solution to make up for the lost payments, such as…

Reinstatement. After non-payment, such as after a forbearance period, your lender allows you to pay up in a lump sum on your missed payments to make your account current.

Repayment Plan. After non-payment, such as after a forbearance period, you restart regular monthly payments that are at your regular rate, plus a portion of your missed payments until your account is current.

Loan Modification. If you explain your situation, your lender might be willing to change your mortgage terms and conditions to make payments more affordable for you, such as by expanding your repayment period or lowering your interest rate.

Partial Claim. If you have been delinquent on your payments between 4 and 12 months, then you might be able to obtain a no-interest loan from the guaranteer of your mortgage (such as FHA) to make up for your missed payments.


If you will not be able to make payments to keep your home

Sometimes there simply are no actions that can be taken, and no arrangements to be made, that will make it possible for a borrower to keep his or her home. In this case, it still is possible to avoid foreclosure if you act quickly and communicate fully with your lender. Remember, mortgage brokers want money, not houses, so most will be willing to help you if possible. Even though the following options result in the loss of your home, they will save you from having a foreclosure tarnish your credit.

Selling. If it is clear that you are facing foreclosure, your lender may give you a specified period of time during which you may work with a real estate professional and sell your house to pay off the rest of your mortgage.

Short Payoff. If you are at least two months delinquent on your mortgage payments, then you may have between 3 and 5 months to sell your home, even if the selling price is less than what is owed on your mortgage. Remember, your lender would rather get something than nothing.

Assumption. You may be able to transfer the remainder of your mortgage to a qualified buyer.

Deed-in-lieu of Foreclosure. In this transaction, the borrower essentially gives the property back and no longer is held liable for the debt. This usually is not an option until you have unsuccessfully tried to sell the house.

Conclusion

The longer you wait to deal with your concerns about your mortgage payments, the worse your chances of keeping your home, so do something. First things first, contact your mortgage lender.