This article will help you understand the foreclosure process and the steps you can take to help avoid it from happening to you. Foreclosure is a legal process that your mortgage lender initiates in order to repossess or take back ownership and control of your home. This will occur if you are having trouble keeping current with your mortgage payments. Chances are that you will receive letters and/or threatening calls from your lender before this occurs. Once your lender forecloses on your home, you must “vacate” or leave the premises. The lender will then attempt to sell the house and, if it is worth less than what your remaining mortgage balance is, you could still end up owing the balance if they seek a “deficiency judgment”. Once this happens, your credit rating will be seriously reduced and you will have trouble obtaining credit in the future.
In this Law Guide Article
- Steps to Avoid Foreclosure
- Possible Help from Your Lender
- Areas of Caution
- Get it in Writing and Review the Paperwork
Steps to Avoid Foreclosure
One of the first things you should consider in order to avoid your house going into foreclosure is to call or write your mortgage lender and inform them of your financial situation. They may be able or willing to work something out with you. They will want to know your income and monthly payments you are making. Virtually all mortgage agreements will make you liable for additional expenses for collection in the event of your breach or “default” of your loan. Perhaps you will be permitted to modify your payments temporarily. If you are able to come to an agreement, make surer you get it in writing and you have it reviewed, preferably by an attorney, before signing it.
If you have financed your home through the Veterans Administration, you may wish to contact the office nearest you and inform them of your situation.
You can call HUD (Housing and Urban Development) for an approved credit counseling agency. Sometimes counseling services are offered free.
Do not abandon your home. Your eligibility for assistance may be disqualified if you do.
Do not ignore calls or letters from your mortgage lender. It will only make matters worse and you will be responsible for any additional expenses incurred in ordeer to collect money from you.
Possible Help from Your Lender
You lender may be able to help. Some of the help they may offer are:
Your mortgage lender might offer to temporarily reduce or suspend your payments based on your financial situation. They will take into consideration a recent job loss or unexpected increases in your living expenses such as an ongoing medical expense you have just incurred. You will have to be able to show proof that you can pay the reduced payment amount.
Your mortgage lender may be able to refinance your mortgage for a longer term mortgage loan. For example, if you are paying on a 15 year mortgage, they may be able to refinance it for a 30 year mortgage, which would reduce your monthly payment amount.
You may be eligible for an interest free loan from HUD that can help you catch up on your past due mortgage payments. Your lender can work with you on getting a HUD loan. To qualify at the time of the writing of this article, you must be in default of your mortgage, at least 4 months late on your mortgage payments and you can not already be in foreclosure. You will also have to help yourself – you must be able to start making your regular mortgage payments again. Your mortgage lender will file the partial claim with HUD and then HUD will directly pay them that amount to bring your mortgage up to date. You are required to sign a promissory note and a lien is placed on your property until the note is paid. The promissory note is interest free and must be paid in full when you sell your house or vacate the property or when the mortgage is paid off.
Pre-Foreclosure or “Short Sale”
With your lenders approval, you can put your house up for sale if you think you will be able to sell it within 3-5 months. This would be an “as is” sale, typically for (a) at least 70% of what the balance of your mortgage is, and (b) a sales price of no less than 95% of the appraised value of the property. You will likely have to be in default and at least 2 months behind on your payments to be able to get your lender to approve this type of sale.
Deed-in-Lieu of Foreclosure
This mechanism may be used as a last resort of simply giving back your property to the lender. You may be able to use this option if (a) you don’t qualify for the other options, (b) you have made an attempt to sell the house before foreclosure, and (c) do not have another FHA mortgage in default.
Going to a housing counseling agency will help you to find out if you qualify for the options listed above and any other remedies that may be available to you.
Areas of Caution
When you are trying to find out your options and desperate for help, you need to be extra careful to watch out for scams. If something sounds too good to be true it usually is and unscrupulous people know you will be extra vulnerable to promises that will fix your problems quickly.
Equity skimming scam
If you are selling your home on your own, do not let the buyer rush you through the process. People often times try to take advantage of distressed seller and will offer to pay off your mortgage and then give you some of the proceeds from the sale. This is called “mortgage skimming.” The buyer will try to get you to move out and deed the property over to them. Just signing over the deed does not necessarily relive you of the debt. These scammers will collect rent from renting out the property but will not pay the mortgage payments, thus allowing it to go into foreclosure. You are still liable for the mortgage balance and they will have the rental payments on the property.
Fake Counseling Agencies
Only go for HUD approved housing counseling to avoid scams from fraudulent agencies.
Get it in Writing and Review the Paperwork
Do not sign any papers you do not understand. Get whatever promises are being offered in writing – never make an oral agreement or “understanding“ with regard to a real estate transaction. Make sure you seek legal counsel before you agree to any deal involving your home mortgage.