Friday, October 16, 2009

Ways To Stop A Foreclosure

Selling a home to avoid foreclosure is only one of the seven most common ways to stop a foreclosure action. You may be able to keep your home if you can prove to your lender that you’re situation was only temporary. Regardless of your situation, the first step in stopping an impending foreclosure is to understand what your options are.

1. Refinance

To be a good candidate for a refinance you should have a substantial amount of equity in your property (typically a minimum of 25%-30%). And the sooner you refinance (assuming it makes good financial sense) the better. The longer you go without making a payment, the greater the impact on your credit, and the harder it will be to qualify for a new loan.

2. Sell the Property

Selling is another option to stop foreclosure. This is not always a realistic option however since you must be able to sell fast enough to avoid foreclosure and for a high enough price to pay off the mortgage (and all other cost associated with the sale).

3. Short Sale

Here again, you’re selling the property. But in this case you’re selling the property for less than what you actually owe on the property. A “short sale” can only be done with the approval of the lender and typically involves selling to an experienced investor with a thorough knowledge of how a short sale is conducted. If the lender agrees to a “short sale”, it typically requires that the borrower not receive any cash proceeds from the sale.

4. Repayment Plan / AKA Special Forbearance Plan

The repayment plan is an option made available to those who can prove that the reason for their payments being late was a temporary one. If you can indeed prove to the lender that your late payments were the result of a “temporary hardship” that has since been resolved, they may allow you to continue making your regular mortgage payment and add an additional dollar amount on top of that each month to make up for the amount you are behind.

5. Loan Modification

A “loan modification” is an agreement with your lender that permanently changes the terms of your original mortgage agreement (i.e., from ARM to fixed, or from 15 year amortization to 30 year amortization) in order to bring your loan current and make the terms more affordable to you. Most lenders will require that you pay a minimum of your past due amount (usually at least 25%) before approving a loan modification.

6. Partial Claim

This is an option only available on FHA insured loans. In simplest terms, HUD (Dept. Housing and Urban Development) agrees to make a new loan for the amount you are behind. It is currently a zero interest loan (but HUD reserves the right to charge interest in the future). And no principal payments are required to be paid until you pay off your first mortgage or sell the property. This option is not available if your first mortgage is already in the foreclosure process.

7. Deed-in-Lieu

This is an option where the borrower deeds the property to the lender as full satisfaction for the mortgage amount owed. The lender can refuse to accept a “deed-in-lieu” and often does since they stand to incur certain cost in the form of holding cost, repairs and real estate commissions if they do take the property as settlement for the loan. They are also subject to inherit any potential title problems you may have as well.

Bankruptcy is another option but it is usually just a temporary “stop gap” measure that simply compounds the problem. More often than not, those who file bankruptcy in an attempt to stop foreclosure find themselves facing foreclosure again within a short period of time.

Regardless of how the situation came about, the worst thing you could do when facing foreclosure is to “do nothing”. The end result in such cases is always the same.

The lender follows through with foreclosure proceedings and the property is auctioned off at the courthouse steps. The Sheriff shows up at the front door with an “eviction notice” and escorts the “previous owner” from the house as all their personal items are removed and put to the curb.

Don’t let that happen to you.

The first step toward stopping foreclosure is to know and understand what your options are. Learn your options and then put a plan into action to remedy the situation in a manner that will do the least amount of damage possible to your credit and your future.