If you spend enough time on Google you can find plenty of ways to put off foreclosure. Seriously, just google “stop foreclosure” and you’ll get more results than you could possibly read.
Of course, when you have that many results from that many sources, you’re bound to run into bad information. On foreclosures, bad information seems to be everywhere. Sure, there are about a dozen ways to avoid foreclosure today. But in too many of those instance you’re robbing Peter to pay Paul. Eventually it will catch up with you.
If foreclosure is breathing down your neck, you do have a few smart options at your disposal. Not all of them will be available at all times. Some markets make some options impossible. Your mortgage payment status also plays a role. You’re much better off doing something before you miss a payment than you are even a day after that payment date.
Before you miss a payment
It might be embarrassing. It might make you uncomfortable. But it can be the one way you nip foreclosure in the bud. If you know you can’t make a mortgage payment, get on the phone with your lender before the due date. Working out options with your lender is much easier before you miss a payment than after you miss one.
What can you do if you talk to your lender before you miss a payment?
Repayment plan. If your financial woes are temporary, and you can demonstrate that to the bank, they might let you miss a payment or two. To get back on track, they would increase your payments by a modest amount, maybe $100 per month, until you’re caught up. This option is really only available for mortgage holders in good standing who contact the bank before they miss a payment.
Forbearance. Again, if you are in good standing and are facing a temporary financial setback, a lender might allow forbearance. This means that you skip a few payments before getting back on track. The downside is that you’ll have to pay interest on those missed payments, so your loan grows a bit. But it sure beats a the foreclosing procedure.
Refinance. The solution might be simple. Why not just apply to refinance your mortgage? That way the new loan pays off the old one, and you might get better terms on the new one. (You sure better get more favorable terms, or else what’s the point?) Problem is, refinancing is easier said than done. If you don’t have a lot of equity in your house, it’s probably not an option at all. If you do have equity, spreading out a smaller mortgage over a fresh 30-year period might help in the long run. But note that you might end up paying more in the long run due to paying the interest over a longer period of time.
After you miss a payment
Missing a mortgage payment is a big deal. Typically your mortgage lender will provide a small grace period, 30 days, before it starts to get suspicious. So when we say “after you miss a payment,” we really mean “after that 30-day grace period.” Which means you’ve probably missed two payments. Miss a third one and real trouble starts. That’s when lenders will start the foreclosure procedure.
At this point your options are quite limited, which is why the smartest course of action is to talk to your bank before you reach this point. No amount of embarrassment is more painful than getting a letter from the court demanding payment (or worse, getting served papers directly from your lender).
Payment in full. At this point the lender is all riled up, so they’re not likely to accept anything less than full payment. Of course, if you could afford the payment in full you probably wouldn’t be in this position. So while this is the most effective option for dealing with foreclosure proceedings, it’s probably the least realistic. It will get you back on track and in better standing with your lender.
Note modification. If you have an adjustable-rate mortgage, or a generally high interest rate, the lender might prefer to freeze or lower your interest rate rather than go through with foreclosure. This isn’t very common, since people can fake poverty in order to secure a better interest rate. Yet they also typically won’t do this if you don’t have a good credit score. So if you have all the cards lined up, and you can convince the bank it’s in their better interest to modify your loan than go through the expensive and time-consuming foreclosure procedure, you might have a case.
Contact the FHA. In some cases, the Federal Housing Authority can help you deal with your mortgage troubles. Of course, your loan will have to be FHA-approved, but if it is you can speak to a counselor about your options. Chances are you’ll have more options with an FHA counselor than without, so if your loan is FHA-approved this is worth a try.
Selling your home to avoid foreclosure
If you’d just like to be rid of your house and the mortgage that goes with it, you could attempt a sale. This can buy you some time at worst — if you attract a bid you can freeze foreclosure proceedings — or get you out with a bit of cash in your pocket at best.
Like all matters foreclosure, selling your house is complicated. If you have an underwater mortgage, you might face a short sale situation. This is essentially a last resort measure. It might sound great, because you can sell the house for whatever you can get and you’re just short the difference. But consider that:
1) Your credit takes a hit
2) You have to pay taxes on the amount you’re short
If you have a bit of equity in the home, selling becomes a more feasible option. It’s still not easy. You’ll have to sell your house fast, which is difficult to do on the real estate market, where you’ll get the most money. Even then, you’ll have to make repairs to get the best offer, or perhaps to sell the house at all.
Cash home buyers can give you a way out. If you have some equity in your home, there’s a chance that an all-cash, as-is offer covers what you owe the bank and then some. That won’t always be the case, but it’s just one more option for when you face foreclosure.
There are plenty of things you can do when you face foreclosure on your home. Not all of these options are as smart as the others. The smartest option depends on your unique situation. Just know that if you’re going to miss mortgage payments, not all is lost. You have ways to get yourself back up onto dry land.