12 Tips to Prevent Foreclosure
Finding yourself at the potential risk of a foreclosure is an incredibly unpleasant experience. A lot of people buy a home and, whether due to the current economic climate, a change in circumstances, or because of a financial emergency, they find themselves unable to keep up with their home payments. It’s only a matter of time before someone comes knocking, trying to take your home away from you and leave you with nothing. It’s not unreasonable to be scared of what the future might hold.
However, foreclosure can be avoided, and it can be prevented, even if your current situation seems hopeless. There’s a good chance you haven’t explored all the options available to you. For that reason, GM Home has put together twelve tips that can help you avoid a foreclosure.
Don’t Ignore the Problem
When you start falling behind in payments because of a new financial problem, the worst thing you can do is procrastinate. Don’t pretend it’s not happening if the lender isn’t getting in contact with you; rest assured they already know. Traditional lenders like banks process late or missing mortgage payments more slowly and often by mail, but just because you’re not getting angry phone calls doesn’t mean you’re off the hook.
If you receive any mail from your lender, make sure you open it even if you dread what it might say inside. Many sub-prime lenders will send out letters offering assistance to their customers if they have reason to believe they have an issue with the current payment plan. If you neglect to open those letters, the next ones might contain a notice of legal action that you have to be aware of. You don’t want any foreclosure court measures being taken without your awareness.
Look at Your Loan Documents
The process of what happens when you miss your mortgage payments, what actions the lender will take, and what options are available to you, are likely to be stated in your mortgage loan documents. You should also be aware of your rights by getting in contact with the State Government Housing Office. There are specific foreclosure laws and timeframes that both parties need to follow. If your lender is, for instance, speeding up the foreclosure process without offering the prevention options that they are supposed to provide you with, you might be able to get legal help in stalling the process and then getting access to those options.
Start Negotiating Early
The majority of lenders want you to be able to pay off your mortgage safely and reliably. They don’t want to deal with foreclosure costs they can incur, nor do they necessarily want to chase you for the money. However, your ability to negotiate with them dwindles the more your credit rating suffers. There are more foreclosure prevention programs available to those who don’t yet have credit issues, too. As soon as you recognize a problem that you will have trouble recovering from without assistance, you should get in touch with the mortgage company.
Ask About Forbearance Plans
One of the foreclosure prevention programs more readily available to those who get in touch with the bank earlier, rather than later, is a forbearance plan. These plans are suitable for people who are having temporary financial trouble and can’t afford to make a one-time reinstatement payment. It’s a plan that suspends the foreclosure process and allows you to pay the missed amount over a longer period of time. Once the twelve repayments in the forbearance plan are all made, the mortgage goes back to normal.
Refinancing is a good solution for those who still have their income, have some equity in the home, and still have a good credit situation. Simply put, it’s a new loan to replace the old one. It starts with a temporary reduction in payments, but it should be worth noting that those payments tend to increase after a certain amount of time. It’s not a short-term solution. If you are having issues with your finances that mean you are unlikely to meet your mortgage payments in the future, refinancing may simply end up putting you back in the foreclosure process. You need to be sensible and realistic about whether you should refinance.
You should also be aware of potentially predatory lenders who might take advantage of people at risk of foreclosure. You do not want to end up in unaffordable loans that you don’t fully understand.
Consider Loan Modifications or Reinstatement
You may have already solved the initial problem that led you to miss your mortgage repayments. If so, a reinstatement might be the most painless way to prevent foreclosure. This is the act of simply bringing the loan current. With a mortgage loan reinstatement, you have to repay all the missed payments, as well as the late fees and legal fees due up to the date that the loan is reinstated. Provided you can do that, you won’t suffer any damage to your credit and your mortgage will continue to play out as normal. If you have the cash to do this, send out a reinstatement letter so your lender can inform you as to how much, exactly, you need to repay.
If you can afford your mortgage payments, or something very close to it, then you might be able to negotiate a loan modification. This is somewhat like refinancing, except it modifies the terms of the original loan instead of opening a new one. If the lender is open to this option, you must send proof of income and expenses so they can figure out new terms that will allow you to pay reliably.
Don’t Fall for Foreclosure Prevention Companies Or Quick Rescue Scams
There are a lot of for-profit foreclosure prevention companies that will provide you with help that you don’t necessarily need. Some of these companies will offer to negotiate with your lender on your behalf, which is something you can just as easily do yourself. Doing it yourself often takes less time, too. The money you spend on these negotiators would be better spent on getting current with your payments.
Foreclosure prevention companies are a legitimate but unnecessary business. Any firms offering immediate prevention or suspension of your foreclosure, however, should be scrutinized closely. If they ask you to sign a document that appoints them to act on your behalf, you could end up signing away much more than you expect to. You may very well end up signing a document that allows you to keep living in your home but increases your monthly payments while allowing the firm to continue receiving a big cut in the process.
See If Special Assistance Can Help You
There are, however, other organizations and state assistance programs that can more reliably offer you advice, as well as some real financial assistance. For instance, if you want to know about negotiating a loan or your foreclosure prevention options, get in touch with your local US Department of Housing and Urban Development (HUD) office instead of a foreclosure prevention company. They have counselors that are experienced in providing essential advice. Similarly, the online Housing Crisis Resource Center and Neighbor Works America both help you find honest foreclosure prevention counselors.
Also, there may be state-level and federal programs that can offer more favorable financial alternatives than your lender. On the federal level, the FHA Secure program might be able to offer you a refinance agreement with a fixed rate, instead of one that increases over time like most lenders. To qualify, however, you need to have a relatively good credit rating and your loan must be an adjustable-rate mortgage. The Servicemembers Civil Relief Act also provides foreclosure prevention help for active members of the armed services or people who have served in the past 90 days. If you have been made unemployed recently, then the Home Affordable Unemployment Program might be able to help by reducing or suspending mortgage payments for up to twelve months.
Prioritize Getting Current with Your Mortgage
Don’t expect any of the above measures to work overnight. Traditional lenders like banks are notoriously slow when it comes to processing things. While you’re continuing to seek assistance, you should prioritize getting current with your mortgage and making any payments to them that you can. When people fall into debt with multiple creditors, they often focus on credit card debt first. This is because credit card providers tend to demand repayment more regularly and more urgently than mortgage providers, but that doesn’t mean they should take priority.
Create a debt management budget to figure out how much you can pay towards your debts with every paycheck. If you can, pay the minimum to your credit card providers, but ensure that the bulk of the money you have available is aimed at getting your mortgage current first and foremost. In the meantime, you should consider getting rid of luxuries like online subscription services and cable TV. Consider your spending habits and see where you can cut down. For instance, you could save a lot of money by filling a thermos of coffee instead of buying a cup on your way to work every morning. Your lender is a lot more likely to take your intention to get current seriously if you’re actually putting effort into it.
Sell Off Your Other Assets
You may have some assets that could make a large dent in your debt and help you get current. Assets like a second car, jewelry, or an insurance policy can be sold to provide cash in the short term. You might also want to consider whether your or anyone else in the home can get an extra source of income. Nowadays, the internet offers all kinds of opportunities to do some extra work online from the home, for instance. Even if you can’t make all the payments that you need to through these methods, they can be just another aspect that shows your lender that you are serious about getting current with the mortgage. The more you’re willing to do, the more likely they are to offer some assistance.
Think About Selling Your Home
If you have enough equity in your property, you might be able to prevent the foreclosure entirely by selling your home. It’s important to be aware of the foreclosure timeline. You don’t want to sell so quickly that you are forced to accept the first offer. On the other hand, if you don’t have a lot of time to work with, then selling your home fast may be essential and the best option may be turning to a company that can quickly buy your property, like GM Home. Before selling the home, you want to make sure that there aren’t any prepayment penalties or liens on the property which can erase any equity you may have built up.
Don’t Rush into Bankruptcy
Bankruptcy is a potential strategy if you have no other solutions on hand. However, this depends on what kind of bankruptcy you choose and what your long-term strategy is. A Chapter 13 Bankruptcy can slow or halt foreclosure and allow you to keep your home, but it will not eliminate it entirely. You can only restructure debt on a property if it isn’t your primary residence. You will still have to make monthly mortgage payments, as well as a share of the arrears and your other debts. Furthermore, some of the financial assistance available from the state may be closed off to you if you go through with a bankruptcy. If you rush into bankruptcy but you don’t have the income to continue with your original mortgage payments as well as any extra costs, you may be dealing with a situation that is even more unaffordable and may end up in foreclosure eventually, anyway.
Preventing foreclosure can be slow and it can be stressful, however, it is much more favorable than having someone forcibly take possession of the property you worked hard to buy. Whether you can refinance, sell your property, or you can get some of the state aid that’s available, make sure you explore all your options and don’t give up. The odds of preventing or avoiding foreclosure are improving.
If you decide that selling your home is your best option to prevent foreclosure, consider GM Home Inc. We buy houses in Philadelphia and the surrounding areas with fair all-cash offers. When we buy your house l, there are no fees or commissions, we can close quickly - in as little as 7 days if you need to, and we buy it AS-IS so there’s no need to repair anything. We close at a reputable 3rd party Title Company, or you can choose your own if you prefer.