Fears of foreclosure are more real than ever. If it hasn’t affected you personally, you likely know someone who has been impacted. For those people, it’s tempting to be angry with your lender. But the fact is, the bank does not want your house because they are not in the real estate business. Generally, mortgage lenders are motivated to help you rearrange your financing so you can remain in your house and continue making your payments.
Reduce the Threat of Foreclosure
1. Face the problem head-on.
It won’t go away by ignoring it. The longer you wait, the harder it will be to reinstate your loan, and that’s when the danger of losing your home escalates.
2. Call your lender right away.
When you realize you’ve got a problem, reach out to talk to your lender as soon as possible. Again, the bank doesn’t really want your home, so give them the best chance of helping you save it by acting early.
3. Open the scary letters.
When you open your mailbox and see the letter you’ve been dreading, your knees may turn to gelatin. Resist the temptation to set the letters aside and hide–this isn’t an audit. The first letters may contain helpful information on how to prevent foreclosure, but only if you take action. If ignored, the good information turns to notices of pending legal action.
4. Determine your rights.
Find the documents the lender gave you when you bought the house. These papers should explain your rights and what happens if you fail to make payments. Foreclosure laws vary by state, so you may need to contact your state’s government housing office.
5. Learn the options.
Start by contacting HUD (the US Department of Housing and Urban Development) and talking to a HUD-approved housing counselor. These counselors are provided free, nationwide.
6. Prioritize spending.
You may be under a boatload of debt, but make your house payment the first priority. Take a hard look at what you are spending and eliminate what you can, like cable TV and expensive phone plans, memberships. Put credit card payments and other loan payments on hold as long as you can, to get your house secured.
7. Review your other assets.
If you have a whole life insurance policy, this could be a source of cash. Also look at what you can sell (a second car, expensive jewelry, etc) to raise cash. Is there someone in the household who can get an extra job, even for a few hours a week? If you’re way behind on your mortgage, you may not be able to raise enough through these methods to get you up-to-date, but your efforts will demonstrate to your lender that you are serious.
8. Don’t get involved with a foreclosure prevention company.
This will only waste money you need to pay your mortgage payments. Some of these companies are legitimate, and some are looking for the next easy buck. But legitimate or not, they may charge you a bundle for services and information you can get for free with a lender or a HUD counselor.
9. Don’t accidentally sign away your title.
This may sound like a no-brainer, but there are companies that will claim to be able to halt a foreclosure process if you sign their form, allowing them to act on your behalf. Don’t believe it. The form may actually lead you to sign away your title, effectively making you a renter in your own home. To be safe, don’t sign anything without getting professional advice from an attorney, a financial professional, or a HUD housing counselor.
What if You Miss a House Payment?
After you miss a payment, it may take three to six months before a lender starts the foreclosure process, generally closer to three. By the time you get the first demand for payment, chances are there will already be late fees and penalties added to what you owe. So if it looks like you are not going to be able to make a mortgage payment, don’t hunker down in fear. Contact your lender right away and talk it over. Explain your situation. They may be able to extend you a grace period before they have to add fees and penalties or take legal action.
The possibility of getting a grace period quickly decreases if you try to ignore the problem. Generally, 30 days after you’ve missed a payment you will be found in default, so don’t wait, contact your lender and stay in touch. By keeping honest communication open, you can get your lenders on your side. Also, contact HUD and ask for a housing counselor. A solution still must be found, but by acting fast you are showing good faith.
Options That Can Help You Retain Your Home
Don’t give up too easily. HUD has programs that are not charity, but that can help by refinancing your home, lowering the payments, or reducing the principal.
Here are a few:
The details vary, but you may be able to get your mortgage payment lowered to 31% of your gross income. That of course, makes it more likely that you can keep up with the payments.
Typically this type of modification can result in lowering a payment by 40%. HUD reports that among homeowners who do this, 18% see a payment reduction of $1,000 a month or more. This program is called HAMP, or the “Home Affordable Modification Program.”
HUD also has a program known as HARP, which stands for the Home Affordable Refinancing Program. This is for homeowners who are underwater on their mortgages, meaning, they owe more than the house is now worth. Ask your HUD counselor about this program.
Reducing the principal.
Like HARP, this program helps homeowners whose homes are worth less than they owe. It’s called PRA or Principal Reduction Alternative. This may also be available for homeowners who are underwater on their mortgages.
Contact HUD for other options involving refinancing or loan modification. HUD also has assistance programs for homeowners who are unemployed, and “managed exit” programs. Managed exit programs help homeowners transition into more affordable housing.
You may also contact the Federal Housing Administration (FHA) to get answers to question and to help you understand your options.
Teresa Ambord is a former accountant and a former Enrolled Agent with the IRS. Now she writes for various publications, specializing in business- to- business and personal finance articles. She lives in rural far northern California, and is a fully owned and operated by her posse of small dogs.