6 Step Plan To Avoid Foreclosure

Many homeowners are in trouble due to higher interest rates and the recent lending practices that have put people into homes by pushing the limits of their payment capabilities. Foreclosures are on the rise, and subprime lenders are going bust. Are you in danger of foreclosure? Having problems making your payments. In an article by David Bach, successful writer of the "Automatic Millionaire", he lays out six steps that you can take to avoid losing your home.

Keep in mind that the bank doesn't really want to be a homeowner. Your bank wants to be a lender. Owning a home doesn't make them any money. So, your lender is likely to work with you, as long as you aren't ignoring the situation and just hoping it will go away.

So, what do you do?

1. First of all, call your lender as soon as you know there is a problem. Lenders take your initiative in tackling the problem as a good indication that all will go well. It can completely stop the set foreclosure schedule that a lender follows.

2. The right person to talk to works in your bank's "loss mitigation" department. Never heard of this department? Don't worry; just call customer service and ask for this group! If you get sent to the collections department, don't panic. Some banks have both loss mitigation and collections in one functional area. They can still advise you on how the situation can be handled so that you don't lose your home.

3. Be prepared to talk in detail about your financial situation. If the lender is going to work out options with you, everyone needs to know the score. Have you current payment obligations, your current pay and any other documents that can help you accurately describe where you are at financially. You want to present the right picture, not the "best" picture. If you make your financial situation look too rosy, you could end up with a solution that's more than you can afford. If you make your situation look too bad, you may only be offered a liquidation option. You'll avoid foreclosure with liquidation; but you won't keep your home.

4. Understand your lender's options. Your lender can do more than just force you to sell your home! They may offer "retention options" (which allow you to keep your home) or they may offer you "liquidation", which means your home is sold to meet your obligations, but without the black mark on your finances of a foreclosure.

So what are your options? If you get to keep your house, you'll likely be offered one or a combination of forbearance (where you pay less than the full amount of your mortgage payment for a temporary period); a repayment plan where you pay the outstanding amount in installments; reinstatement, where you pay the outstanding amount in payment by a certain date; or loan modification, where you basically renegotiate the terms of the loan.

Sometimes, it's not possible to keep your home because you just can afford it and yet you may not be able to sell it. Then you'll be offered liquidation options, including turning over your property voluntarily to your lender; or selling your property. If you can't get the full amount that you ower from the sale of your home, it could be considered a "short sale" where the lender accepts the amount as a full settlement. You could also sell your home and have a qualified lender assume your mortgage debt and take over the payments.

5. What if your lender isn't being helpful? There are other options. Non-profit credit counselling agencies are an option. You can also contact the Homeownership Preservation Foundation. They are HUD-certified.

6. Understand the foreclosure process so that you can act before you are in trouble! There are generally 4 steps. The first is redemption: you'll be contacted by a lawyer for your lender, and given a date to pay all missed payments, or face foreclosure. Once that date has passed without you paying up, you are officially in default. Once you have a default notice posted against you, you will move quickly into foreclosure, where the bank can take possession of your home. At this point, the home will be sold at a public auction for whatever price the lender can get.

If at all possible, you do NOT want to enter this downward spiral. Foreclosure will destroy your credit rating and can still leave you with a debt to your lender, particularly if the home is sold for less than your mortgage amount.

Here's the most important thing to do right now: if you have a subprime mortgage or ARM, get out your documents right now and look at what your interest rate will be when your introductory rate expires. Will you be able to afford your payments? If the answer is no, act now before you are in trouble and under pressure! Call your lender and find out about refinancing options that can help you keep your house.

Michael Chantrel 

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