Steps to Take When Trying to Avoid Foreclosure

If you’re having difficulty making your mortgage payment and you’re worried about the possibility of having to face foreclosure, the time to act is now. Don’t wait until it’s too late. By following these steps at the first sign of trouble, you may be able to avoid the stress and financial struggle of foreclosing on your home.

Step One: Honestly Evaluate Your Debt

Every homeowner’s situation is different. In many cases, foreclosure can and should be avoided. In others, it may not make the most sense. Start by figuring out how behind you are, how much money is coming up short each month, and if it’s realistically feasible for you to make adjustments to fix the situation.

If, for example, you’re struggling to make your mortgage payment because you just need an extra $300-$400/month, you may be able to reduce your household spending or consolidate other debts to make the needed difference. This may take some sacrifices, like selling the vacation condo, cutting back on luxury purchases, and just living more modestly in general.

On the other hand, if you’re plagued by debt, have multiple mortgages or HELOCs, have already cut back wherever you can, and have no avenue for increasing your monthly income, then a foreclosure may be the only option. The point is, if it’s at all possible for you to avoid foreclosure, you’ll want to figure out how to do it sooner rather than later, because it will only get more difficult the longer you wait.

Step 2: Talk to Your Lender

It is extremely important and often very beneficial to homeowners, to keep the lines of communication open with your lender.

If you’re beginning to have trouble making your payment, and you don’t foresee it getting any better next month, call your lender and inform them of your situation. Just be direct and honest – no need to be embarassed or provide a sob story. Simply tell them what’s happening and ask them if there are any options they can provide that will help the situation. In some cases, a refinance or a loan modification can be arranged, but it will depend on the circumstances of your situation and the lender’s policies.

Step 3: Reach out to Financial/Housing Counselors

Your lender may be the one who suggests this to you. Financial counselors and housing counselors are professionally trained to help homeowners work through their financial troubles and help you develop a strategy that is tailored to your needs. You can find a list of qualified housing counselors that are trained specifically in foreclosure prevention on the U.S. Department of Housing and Urban Development (HUD) website here: http://www.hud.gov/offices/hsg/sfh/hcc/fc/

Step 4: Consider Putting Your Home on the Market

If you’re unable to work something out with your lender, aren’t eligible for refinancing, and have been unsuccessful in increasing your monthly income, the best option may be selling the home – and doing it as quickly as possible so you don’t continue to accumulate debt. Of course, there’s no guarantees when it comes to real estate, which means you’ll need to be prepared to see your home sit on the market a while (or be prepared to take a loss by selling at an attractively low price).

Another option is to consider a short sale. In this situation, you and your lender agree to sell the home for less than what is owed on the mortgage, and any proceeds from the sale will go toward your outstanding mortgage debt. While short sales aren’t always ideal, as they mean both parties will take a loss, it is less devastating to both the lender and the borrower than a foreclosure.

Step 5: (Seniors Only) Consider a Reverse Mortgage

While reverse mortgages may not a good option for everyone, they can provide a huge financial relief for some homeowners.

With a reverse mortgage, eligible senior homeowners don’t have to make mortgage payments – instead they can receive payments from the lender. This money can be received in a lump sum, monthly installments, a line of credit, or a combination of the three. Reverse mortgage funds do not have to be repaid until the homeowner no longer lives in the home, at which time the loan must be repaid – usually by the homeowner’s estate or the homeowner’s heirs. If the heirs/estate is unable or unwilling to repay the loan, they are not held financially liable. Instead, the lender will sell the home. The downside to this is that the family loses the home and/or any profit generated from the sale of the home.

Speak with one of our qualified mortgage experts about your options by calling or click here to fill out our quick quote form to be contacted.