A Guide To Preventing Foreclosure

If you're finding it increasingly difficult to meet your mortgage repayments… and are worried that the bank may foreclose on you… read on. In this article I'll give you some of the ways you might avoid foreclosure.

Your house is likely to be subject to foreclosure proceedings once you default on your mortgage repayments, and despite various "warning" letters from your lender, you persist in failing to meet these repayments. At this point your lender will send you a notice that it is beginning foreclosure proceedings. You will have a date by which to pay back all the owed repayments. If you don't pay this money back by the due date, your lender will sell your house at a public auction or trustee sale.

The very best thing you can do to save your home from foreclosure is to make sure it doesn't happen. And the way to make sure it doesn't happen is to take notice of the signs of mortgage stress - when you begin having a hard time meeting your monthly mortgage repayments.

It's still a good idea to be absolutely certain that the situation is hopeless before assuming that you can't avoid foreclosure. Can your spending in other areas be cut? Is there a second car or other major (but non-essential) asset that can be sold? Can a spouse obtain a second job? Now is the time to take a hard-nosed look at your financial situation and make whatever changes are needed to ensure you don't lose your home.

Nevertheless, if your current financial hardship isn't likely to be temporary, you have nothing to gain - and a home to lose - if you don't face facts. If you want to prevent foreclosure, it's essential that you contact your lender as soon as possible in order to discuss you situation.

Be co-operative with your lender and open to ideas about how you might retain your mortgage. Your lender may work with you to come up with a new budget, and suggest some options for enabling you to keep your home. These options may include:

1. Accepting an alternative repayment plan.

2. Forgiving a payment.

3. Allowing you to meet the unpaid amounts by adding extra amounts to you current repayments until the outstanding amounts are paid.

4. Changing the terms of the loan agreement - e.g. by adjusting the interest rate, extending the term (and reducing the sum of the repayments), etc.

5. Refinancing the loan i.e. increasing the balance of your loan to include the unpaid amounts, and re-amortizing the loan.

6. Issuing a separate loan to cover the unpaid amounts.

If none of these options is available to prevent foreclosure, and it's likely that your home will be foreclosed, you should still co-operate with the lender.

It almost goes without saying that you should be clear about your own rights and responsibilities. This means understanding the terms of your loan agreement, as well as the foreclosure laws that apply in your state. A very real option for avoiding foreclosure is to sell your home by the due date given in the notice of default. This may be your best option, and may even give you a small profit. But even if it doesn't, it will avoid foreclosure proceedings and the resulting damage to your creditworthiness.

Even if you are likely to lose your home, that doesn't mean it has to be foreclosed. If you are able to sell the property, for example, that will stop the foreclosure. In fact, here are a few remaining ways to get out of foreclosure:

1. Sell the property - this may be your best strategy, especially if the value of the property exceeds the loan.

2. Agree to a short sale - a short sale is where you sell the home for less than the value of the loan. You will need the lender's agreement to this.

3. Deed the property to the lender - you sign a deed-in-lieu of foreclosure, under which you
give the lender a notarized deed, and the lender forgives the mortgage. This cancels the foreclosure, although it may still affect your ability to obtain credit in the future.

None of these options may seem all that appealing, but they are still ways to get out of foreclosure. If you are going to lose your home in either case, selling it on your own terms may be much more preferable than having the property foreclosed.

Foreclosure is an unhappy business for a house owner. But it's not inevitable and you may well be able to stop it from eventuating. Maintain a vigorous awareness of your financial situation. Cut your spending. Sell off things you don't need. Renegotiate the terms of your loan with your lender. In short, do what you can to avoid losing your house. But even if you can't keep your house, it's still vital to be proactive. By, for example, selling your house to an investor, you can still stop the foreclosure proceedings, and avoid the consequent credit damage.