Avoid Foreclosure – Here are Options of Homeowners
There are a ton of homeowners right now struggling to make payments and hoping to avoid foreclosure because let’s face, things just aren’t the same as they were before the market took a dive.
People are working harder and longer for about half or a third of what they use to make. Retirement accounts look about as good as they did when you first started dumping into it. Any savings has been depleted.
And now to make things worse, even if you wanted to sell your home, most homeowners wouldn’t be able to because their home is not worth what they paid for it. Yes, nearly 25% of all homeowners are underwater or upside down, meaning they owe more than what their home is worth.
So even if they wanted to avoid foreclosure, many would agree that trying to list the home for sale would not even be an option. In fact, a lot of people in this situation are just giving up, throwing in the towel and “strategically” defaulting on their home because they don’t see any reason for keeping it.
3 Options To Avoid Foreclosure
So what are some options for homeowners who might be in this situation, to try and avoid foreclosure?
For those that might be upside down, struggling to make payments, trying to refinance is pretty much impossible. However, you could try to do a loan modification. This is where you work out a deal with the lender to lower your interest rate for a given amount of time in order to get back on your feet.
Each bank may have certain requirements and or expectations…
When the loan was originated, is it a primary residence, can you prove hardship, etc.
Another option is a short sale. A short sale is basically when an agent or investor negotiates a discount with the bank so they can sell the home to an end buyer which avoids foreclosure. The only downside to this is that you have to leave your residence and your credit is affected for the next few years.
Again with a short sale, you have to prove that you have a hardship, send in financial statements and wait about 8 months. But in the meantime, you basically live there rent free.
This is better than foreclosure, however there is also another option that could even be better ONLY if you have a 2nd mortgage. You might know it as principal reduction or note settlement. This is where you go to the bank and offer to “buy” the note for a discounted price. Similar to a short sale in that both are negotiating discounts, however this option allows the homeowner to stay in the home!
We love this option because not only does the homeowner stay in the home and avoid foreclosure, it doesn’t effect the homeowners credit either. It’s also a permanent solution and not just a temporary fix. And once a settlement is agreed upon, because it’s a lesser amount, payments are a lot less and now the home is no longer upside down.
Here is an example of a note settlement…
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- John owes $300,000 on his home that’s worth $250,000
His first is $220,000 and his second is $80,000. The payment on his 2nd mortgage is $500. He negotiates with the bank to take $20,000 for the 2nd to be settled or wiped out. They agree. (yes this is very common, we have an high success rate so don’t think they won’t settle. It happens all the time.)
So now, you either pay them $20,000 to wipe out the note (eliminate $500 a month) or if you don’t have the money, a “note investor” like us, would buy the note and make new terms to you. We become the bank now. We would do this because now your home has equity. We might agree to $250 / month for the next 10 years.
That just lowered your payment by $250 each month and now you can sell your property if you need to get out without damaging your credit. You wouldn’t be able to walk away with much money but you would avoid foreclosure… Oh, and you don’t have to be delinquent either for this to work. That’s also why we love this strategy.
==> You can learn more about NOTE SETTLEMENT HERE <==
Now if you don’t have a 2nd mortgage, it’s very difficult to get a principal reduction on a first mortgage, however it has happened. Your best bet is to do a short sale and see if you can modify the loan. As with all these strategies, they like to see some sort of hardship, that is the key.
My wife & I are struggling with our mortgage. We have two loans with option one (1st-$130K @ 10%ARM, 2nd-$30K @ 11% fixed) and are now behind two months. Our payment (including taxes, condo fee, etc) has jumped this year from $1650/mth to $2000/mth. Plus my wife was forced into a less paying position, bringing our income down $500/mth.
Condos in our building, like ours are on the market for $110k; we owe $160k. My property taxes are due at the end of March & I don’t have the money to pay it. We are ready to just move out & rent.
We called option one before we were behind and they wouldn’t work with us. I sent a letter last week, asking for a loan modification (no response yet), plus I contacted their Home Retention Dept. this week asking for help.
Is their something else I should do?
Should rent before my credit is ruined?
Can I short sell; how would I do that?
Thanks.
It’s unfortunate the housing market has turned this way. There are dozens of people like yourself in similar situations. We are working with a family now that knew they couldn’t afford the house they were living in, so before their credit went bad, they qualified for a smaller house, bought it and the other one is in foreclosure which we are doing a short sale on. I would keep calling your bank to try to work out something. Typically they won’t do anything until you are 3 or 4 months behind. I would ask them to lower your interest or your payment. You could try to lease or rent it out, but you may have challenges breaking even on the rent. You can start the short sale process as well. I would try to find a local investor in your area who knows what they are doing. Or call your lender, get the necessary paperwork and find a buyer for the discounted price and hope the bank accepts it.
Hi,
Foreclosure can be stopped in the initial stages of mortgage delinquency say before 2 or 3 months.
Some of the important things you can do to avoid foreclosure are-
1)Don’t buy a house which you cannot afford.
2)Pay your mortgage payments.
3)In any case if you are missing or behind on house payments and is unable to catch up, then inform your lender about it. It is your responsibility to notify your lender, so that he can explain you the entire process and what to expect.
4)Know about “Loss Mitigation Process”
Loss mitigation – was initiated by the government of America to help people get out of a Foreclosure situation. This clause has many options, like –
Loan modification – Under this, the terms of the loan mortgage could be modified for the ease of homeowner and help him get out of foreclosure.
VA loan modification or refunding – Under this option, homeowner’s loan is bought by the VA (Veterans Affairs).
Short Payoff – this is another option where the lender may chose to buy the property from the borrower so that the latter is able to get out the foreclosure situation.
Deed-in-lieu – in this, those homeowners who need to sell their house in a foreclosure situation (and their property has been on the sale for 90 days), get a repayment plan. This is valid for those who are past due for two or more months in their payments.
5)Attend free training or seminars conducted by non profit organizations to help homeowners avoiding foreclosure. They may help you in negotiating with the lender or may find any other alternative way of stopping foreclosure.
6)You can also consult foreclosure assistance companies. But there are many predatory companies who are not what they appear to be. Do your homework, check their reputation and give them a call, speak with one of the professionals and you will be able to judge for yourself. In fact some of them offer free consultation.
Thanks,
marina
If you wish to delay a foreclosure and buy more time, list your home for a short sale. Most lenders do not want to foreclose, so they will probably delay action for a while since the home is listed for sale. After all, after they foreclose, what is the first thing they have to do (after clean up the house)> List it for sale.
If you want to keep your home, Loan Modification is best. ALL terms of your loan are open for negotiation. I mean ALL. Amount, rate, term, all. Upon successful negotiation, you are back at square one with a modified mortgage. Keep up with that loan. You really can negotiate the balance down if you are upside down. After all, after foreclosure they will only be able to sell for market rate. You should only modify to market rate.
You can do this yourself with the right mindset and information. Or you could hire someone to do it for you. Ask yourself, “Are they as committed to keeping me in my home as I am>”
I hope this was just a rhetorical question, but if not, best of luck to you.