FORECLOSURE 101

There are many ways to keep your home out of foreclosure. Above all, talk with your lender as early as possible when you first realize you won’t be able to make a payment. Open communication is essential. Mortgage companies don’t want your home. They want you to pay back the loans and can be flexible when you need it, you just need to contact them and learn what options are available.


AN OVERVIEW OF YOUR OPTIONS

These are the most common options available to someone who is behind on payments.

  • Forbearance
  • Repayment Plan
  • Loan Modification
  • Refinance
  • Short Sale
  • Bankruptcy

The option that is best for you will be determined by a variety of factors including whether you want to stay in your home or are willing to sell, how far you are behind on payments (in other words how much you have to “make up”), how much time there is before the foreclosure sale, and your current financial circumstance. There are other external factors to consider, such as your lender’s willingness to work with you.

Every situation is different, but here are some general guidelines:

  • If you want to stay in your home you should consider working with your lender on either a forbearance, repayment plan, loan modification or refinance. Each of these involves modifying the terms of your loan so that you can “make up” the missed mortgage payments and/or adjust your loan with a lower interest rate or terms that will make it easier for you to make your payments.
  • If you are willing to sell your home you should still try working out an arrangement with your lender first. If that doesn’t work, you should consider a short sale. With a short sale you end up with a “settlement” on your account instead of a short sale which is significantly less damaging to your credit.
  • If you are just a month or so behind on payments you may have several options available to you. With foreclosures, timing is everything and the more time that goes by that the more limited your options can become. It’s imperative to act quickly so that you keep more options alive.
  • In some circumstances filing bankruptcy may be your best option. Consult with a reputable bankruptcy attorney who understands real estate if you are considering this. Beginning the bankruptcy process will halt the foreclosure process but only temporarily.

Get a Forbearance

With a forbearance, the lender agrees to delay foreclosure for a certain amount of time to let the homeowner try to “catch up” on their missed payments. The lender may allow the homeowner to reduce or suspend payments for a certain period of time to bring the loan current. The time period and the terms of the payment plan must be agreed up on by the lender and the homeowner. Forbearance works for homeowners who are experiencing a temporary financial hardship but is unlikely to be a viable option with more permanent financial troubles.

It is possible to get a loan forbearance on your home mortgage even if you’ve already gotten the notice of default. You may need to agree to a repayment plan with the lender and will be asked to sign a ‘forbearance agreement.’

Ask for a Repayment Plan

You can also try to work out a repayment plan on the missed mortgage payments. This is something your loan company might require as part of a loan forbearance.

Repayment plans will vary depending on your situation and how long the mortgage company is willing to let the extra payments extend out. Repayments can consist of adding $100 a month to your current mortgage payments.

Unfortunately, it’s hard to make additional payments when you’re having enough financial trouble to be in default in the first place. There are a few other options for those who need to make lower payments on their mortgage.

Try a Loan Modification

If you just can’t keep up your monthly mortgage payments and certainly can’t keep up with a repayment plan then loan modification may be for you. Modifying your loan allows you to reinstate your mortgage (bring the loan current), which is great if you are in default, and reduces your monthly payments to something you can afford.

There are three things your lender will need to confirm for a loan modification. 1) You will need to prove that you are in hardship or having financial difficulty, 2) you need to show that you can pay the new lower monthly payment, 3) they need to see that you lack equity in your home.

To get a loan modification you’ll need lots of patience and a good phone plan, because you’ll be making a lot of calls. You can try working with the lender to complete your loan modification yourself or use a company to act as your go between in the process. *If you are interested in working with a company that specializes in loan modifications, we can personally recommend several reputable companies. Please contact us for a referral.

Refinance Your Home Loan

Refinancing your loan helps you reduce your monthly payments by taking advantage of lower interest rates. This is a great option for homeowners who have some equity in their homes but are stuck with adjustable or high interest rates.

Refinancing your loan can allow you to also catch up those past due mortgage payments by including them in the new loan. It can also allow you the chance to look at other types of home loans. For example, if you are finding your short term 15 year loan hard to keep up payments on, then converting it to a longer 30 year loan can lower your monthly payments even further.

The process can be involved and you’ll find it very similar to when you applied for the original mortgage on your home. Refinancing also costs you money. There are fees associated with the following: title search, application, credit check and property appraisal. There may also be a prepayment penalty fee for paying off your original mortgage depending on the terms of that mortgage. This can be a couple thousand dollars.

Don’t worry too much though. You’d be surprised what the lenders can work out with you if you are persistent. There are refinance loans that don’t involve fees or have minimum fees and you may be able to include those costs in your new mortgage.

Short Sale Your Home

A short sale involves selling your home to a buyer for less than you owe on the mortgage. It is one of the last options before foreclosure (ahead of bankruptcy). Try this if you find:

  • your loan is too far in default for forbearance or repayment
  • the bank can’t refinance or modify your loan to a low enough monthly payment
  • you have no other options and you don’t want a bankruptcy on your credit

These types of sales are involved, time-consuming processes. It is possible to complete a short sale on your own, but you would need plenty of education, time and patience. Education to navigate through the complicated short sale process with your lender (and each lender’s process is different), time to gather all of the paperwork and documents your lender will need and to make calls to your lender to keep the process moving and to stay updated, and patience to deal with the frustrations and headaches that a short sale inevitably provides. Fortunately, AvoidBayAreaForeclosure.com is here to work with you and with your lender directly to reach a settlement on your account and get you out of foreclosure.

When you begin the short sale process you will need to give the short sale company lots of personal and financial information. This is used for your ‘short sale package’ which shows the bank that you can’t keep up your payments or that your house isn’t worth the value of the loan. This is especially true in areas where the real estate markets have dropped!

You’ll also be selling your home to another person, which means you don’t get to keep it or even stay in it. So, be aware that with this option you will be leaving your house, but the amount owed on your mortgage is drastically reduced and it does significantly less damage to your credit than foreclosure.

Consider a Bankruptcy

You may not want to hear it, but filing for bankruptcy can help save your home. No one wants to go into bankruptcy but if you really can’t negotiate with the mortgage company for a loan modification or get some kind of forbearance then bankruptcy is an option. This is especially true if you really don’t want to lose your home. If you are willing to sell, a short sale may also be a good option for you.

Bankruptcy is a tricky business. Before you even start this process you really need the advice of a good lawyer, preferably someone who can help you decide if this is your best option.

It is important to understand that filing for a bankruptcy while you are already in foreclosure will suspend the foreclosure, but only temporarily. You should consult a bankruptcy attorney if you want to better understand the tradeoffs that come along with filing bankruptcy.

—— Don’t despair if you have missed a few payments or have received that notice of default. Even if the foreclosure sale is close by there are still ways to save your home. These are some of the most commonly found methods and there are variations of each one. Be sure to speak with a foreclosure expert like the team of professionals at AvoidBayAreaForeclosure.com that can walk you through your options and help you decide on the best approach to save your home.

  • WHO WE ARE

    We provide professional, stand-up service to the homeowners we work with by being completely transparent and answering every question that arises as we talk through each option and decide together on the best course of action to avoid foreclosure. With the professionals from AvoidBayAreaForeclosure.com on your side, you benefit from our expertise, experience and proven track record of success.
  • HOW WE CAN HELP

    Do you have questions about the foreclosure process? Would you like to find out what your options are and how we can get the ball rolling immediately? Are you looking for a trusted advisor with a track record of success in helping homeowners proactively avoid foreclosure? We are here to help!