Dealing with foreclosure can be one of the most stressful financial emergencies. After all, your home and whole way of living is on the line. Plus, you stand to lose a huge chunk or all of your savings along with damaging your credit for years down the line.
Even if you’ve lost income and are having trouble making payments, avoiding foreclosure isn’t impossible. With memories and money both tied to the house you live in, you need to be prepared to do everything you can to save your home.
Here’s what you need to know to stay out of foreclosure.
When you’re facing foreclosure, the worst thing you can do is put off getting help. Acting early can be the difference between saving your home and losing it, and ignoring the issue won’t make the problems go away. In fact, waiting can only make getting out of a mortgage mess even harder later.
Before you fall behind on payments, contact your mortgage servicer, which is the company where you send mortgage payments, to see if they’re able to offer help in your situation. You may be eligible for a mortgage modification or other forms of relief. You’ll often have access to more options for help if you make the call before you fall into foreclosure rather than waiting.
Look for trustworthy help
Navigating through mortgage trouble and the foreclosure process is complicated. There’s often a long list of paperwork required, and to make the situation worse, homeowners have complained that banks sometimes lose documents you’ve submitted.
One source of free help is HUD-approved counseling agencies. These agencies are endorsed by the federal government for their free foreclosure prevention services. Agencies will help you work with your lender, submit the necessary documents, and find out what solutions are available.
You may also want to seek out the help of a lawyer. Make sure they’re properly licensed to practice in your state and ask for references from people you trust for lawyers that specialize in handling foreclosure cases.
Beware of scams
Be careful to watch out for scams, especially businesses that guarantee they can keep you out of foreclosure in exchange for a fee. These companies can do more harm than good by delaying you from taking effective steps to stop foreclosure as well as robbing you of dwindling savings. According to the Federal Trade Commission, some signs of a possible scam include businesses that:
- tell you to stop paying your mortgage and pay them instead
- tell you not to contact your lender, a lawyer, or a housing counselor
- asks for upfront fee before providing any services
- tells you to transfer your property deed or title to them
- pressures you to sign papers
Understand foreclosure laws
Depending on what state you’re located in, foreclosure laws vary. Some states require “judicial foreclosure,” which means the lender must sue you in court to foreclose, while other states allow “non-judicial foreclosure” where a lawsuit is not required.
To find out more about the laws in your state, see RealtyTrac’s summary and click the state name to read more. Since laws can be complicated and confusing, consider the help of housing counselors and lawyers, as mentioned earlier.
Check options if you can’t pay your mortgage
If you wish to stay in your home but can’t afford to make the payments as they currently stand, you may be eligible for relief including:
- Refinance – This option is not unique to foreclosure, but if you’re having trouble making the monthly payments on your mortgage, refinancing your mortgage can bring both your interest rate and payments down. To be eligible, you’ll typically need to meet similar requirements from when you first received a mortgage. This includes examining your personal income as well as the value of the property. Unfortunately many homeowners caught up in the housing crisis have not been able to refinance due to falling property values combined with little equity in the property. However, the federally-funded Home Affordable Refinance Program (HARP) may give more options to refinance your mortgage, so be sure to check your eligibility.
- Modification – This can take many forms and may involve programs offered by either your lender or the federal government. Modifications typically involve adjusting the interest rate, term of the loan, or even the loan principal. The federal Home Affordable Mortgage Program (HAMP) was set up specifically to help homeowners facing foreclosure to modify their existing mortgages.
- Forbearance – This option typically means that the lender will allow the borrower to temporarily reduce or suspend mortgage payments and agree not to pursue foreclosure during that period. Borrowers must typically work out a plan with the lender to repay the missed payments.
Consider an exit strategy
Unfortunately, not all homeowners struggling to pay a mortgage will be allowed to stay in their homes. In some cases, there are better outcomes than allowing your bank to foreclose on your home. Two alternatives to foreclosure that may allow you to leave your home on easier terms and with less credit damage include:
- Short sale – This is when a homeowner is able to sell the property, but the purchase price of the home does not cover the outstanding balance of the mortgage. The bank agrees to release its lien on the property by accepting this lesser amount of money.
- Deed-in-lieu – This is when the lender agrees to release the borrower from all financial obligations of the mortgage in exchange for turning over all rights to the property.
Keep in mind that these options are both subject to approval from the lender and might not be available to all homeowners.