Preventing Foreclosure

No question, the best way to get out of foreclosure is to prevent the bank from filing a notice of default in the first place. But even if the bank takes this step, there are still things you can do to stop the loss of your home. In this article we'll take a look at the foreclosure process, and what you can do to get out of foreclosure.

To start though, let me explain what happens when a home goes into foreclosure. As you know, lenders make home loans out to people on the condition that the home is security for the loan. The idea is that if the home owners default on their loan, the lender will be able to sell the property in order to recover the loan amount. That being the case, when the lender is satisfied that a home owner is in default, they will issue a notice that foreclosure proceedings have commenced and that the home owner must repay all outstanding amounts by a certain date. If the home owner can't pay back this money, your home will end up being sold to the highest bidder at public auction.

It's vital that you be alert to the signals that foreclosure may be on the horizon. The first sign is if you are struggling to meet your mortgage repayments. This indicates a problem with your financial management, and unless you do something about it, you may find it more and more difficult to meet your repayments. All it takes is one unexpected bill - e.g. repairs for a car break-down or a surprise tax liability - to send you into arrears. If you can't get back on track AND pay the amount in arrears, you can expect to receive a notice of default and the beginning of foreclosure proceedings.

Just because you have financial problems doesn't mean they can't be solved. If you have gone into arrears because of large expenses elsewhere… maybe it's time to change your spending habits. Also, consider whether certain belongings - those that are worth a lot of money, but aren't used much - can be sold. Whatever you can do to ease the monthly burden of meeting your mortgage repayments, as well as your other liabilities, should be done.

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. Agreeing to 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.

Assuming that none of the alternatives discussed with your lender are possible, it's not the end of the world. Your lender will continue foreclosure proceedings, but it's in your interests to continue to co-operate with them.

It's crucial that you become intimately aware of your rights and obligations during this time. Remember, for instance, that you have a certain period of time in which to pay back the outstanding repayments before your house is foreclosed.

During pre-foreclosure, one of the alternatives open to you is to sell your house. Chances are, various property investors and others will be contacting you to ask if they can inspect your house and make an offer to buy. While it's reasonable to be skeptical of some of these potential buyers, don't reject them all out of hand. If you identify one or more buyers who seem legitimate, be open to the possibility of selling your house to them. By doing so, you may be able to pay back all or most of your loan (including the amounts in arrears) and even reap a small profit. Of course, you needn't wait for potential buyers. You can hire a real estate agent who specializes in selling pre-foreclosure houses to represent you and find prospective buyers.