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Can I Stop Foreclosure from Happening?
A foreclosure is the bad thing that happens when the mortgage isnt repaid. Lenders begin the process of taking your home away from you. It is the legal process by which a lender takes possession of and sells property in an attempt to satisfy the amount still owing on the mortgage indebtedness. When you default on a loan (quit paying), and the lender deems that you are incapable of making payments, you may lose your home to foreclosure.
Being in default, however, does not necessarily lead to foreclosure. Some lenders are lenient ( and smart enough to realize that foreclosure is costly for them). Theyll help you work out a solution if they see that you can remedy your problems.
Lenders dont like foreclosures. They dont want your house. If a lender has too many foreclosures, state and federal bank regulators begin questioning the lenders judgement in mortgage lending. So, its to everyones advantage to try and find a solution if you get behind on your mortgage payments and if you know that you CAN catch them up and if you know that you can really and truly afford the house, but you just had a small problem that got you behind. The most important thing is to CALL the lender. Let them know what is happening, why it is happening and when you can fix it. If possible, if your mortgage company is in your state, go in and have a face-to-face meeting with someone. It all depends on how far behind you are, and how bad your financial situation might be. Avoid foreclosure.
Youre going to have to share a lot of personal information with your bank to explain to them why youve gotten into this mess. It also depends on what type loan you have, conventional, FHA, HUD, or VA as to what type alternatives may be available to you and the lender at this point.
Some of the things you can discuss with your lender would be the possibility of refinancing the loan in order to lower the payments (if the interest rates are lower than your current loan and in order to extend the loan for a longer period of time). But this would also depend on how much damage you may have done to your credit rating if youve gotten behind on other debts as well as your mortgage. If a refinance is not possible, the lender may allow a mortgage modification.
You might discuss a forbearance a "repayment" plan that matches your current financial situation. You would have to provide proof that youve recently had a huge expense such as a medical expense or loss of job, or something that affected your monthly income and your ability to pay your house note. But you must also be able to furnish enough information to show that you would be able to pay the temporary reduction in the house note in you qualify for such a reduction.
Now if things are really bad, and you know that you cant catch the payments up and you are willing to give the house up, there are a couple of options that arent as bad as an outright foreclosure.
Pre-foreclosure Sale You could ask your lender if they would be willing to accept an amount less that the full amount owed on the mortgage. This will allow you to be able to sell the house within 3-5 months. The only drawback on this option is that there may be some IRS liabilities here. If the lender forgives any portion of the mortgage, they might send you a form at the end of the year (with a copy to the IRS) where you have to claim this amount as income for that calendar year. This is a standard practice when debtors forgive debts unless other arrangements or agreements are made.
You can sign the house over to the lender referred to as a "Deed-in-lieu of foreclosure" or a "voluntary foreclosure". This action may damage your credit rating just the same as the involuntary foreclosure. The only difference is, if the home sells below what is owed on it, you will not be held liable for the difference, like you would in the involuntary foreclosure.
Involuntary Foreclosure As I discussed at the beginning of this article this is the action which the lender takes when you have defaulted on paying you loan. Once the lender has started the foreclosure action, there is not much you can do to stop it so the best thing you can do is to not let it happen at all. In the involuntary foreclosure, your home will be sold to the highest bidder, which may or may not be enough to pay off your existing mortgage. If there is a balance left owing on your existing mortgage, the mortgage company has a legal right to come after you for this balance. Also, this involuntary foreclosure will remain on your credit report for 7 years.
If you are at risk of foreclosure, do something about it now. Don't wait any longer to refinance. Refinancing may be your best option if you just can't get caught up. But, if you wait too long, the refinance option will not be there.
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