Take action to avoid foreclosure
If you're behind on your mortgage payments and worried about losing your home, you need to cut a deal with your lender.
We can tell you what to ask for -- and what to expect. Your bank or mortgage company might agree to a new repayment plan that lets you keep your home. Or it may agree to let you sell it at a loss.
Yes, it's embarrassing to have to seek such help, but it will be a lot more embarrassing if your lender forecloses, sells it on the courthouse steps and the new owner serves you with an eviction notice. There are people who do this for a living and they won't lose a bit of sleep over it.
You only have to miss three payments to default on most home loans, allowing lenders to demand immediate repayment of the outstanding balance and begin the foreclosure process. Don't let it go that far. In fact, if you know you will be late with a payment, call your bank or mortgage company before the deadline.
Lenders understand that many borrowers are struggling with the higher payments demanded by adjustable rate or interest-only mortgages.
They're aware that homeowners who made little or no down payment may owe more than their homes are worth because property values have fallen in many parts of the country. That makes it impossible to sell or refinance.
They also know that it costs tens of thousands of dollars to seize and sell a home -- an average of $50,000 according to the Mortgage Bankers Association. That's why lenders have a "loss mitigation" department that works with borrowers in trouble.
Call the customer service number, explain that you're having financial problems and would like to speak with someone about restructuring your loan.
You'll be asked to fill out forms about your finances, including how much you make and how much your owe. Be completely honest. Keep the lines of communication open. If you stop talking, or start tinkering with the truth, your options will disappear very quickly.
It's also important that you stay in your home during this time, as you may not be eligible for assistance if you do not live in the property.
The lender will use the information you provide and make a critical decision: Do you have the wherewithal to work your way through your financial crisis and resume making your mortgage payments -- or not?
If the answer is "yes," the bank will be willing to help you keep your home by offering one of these alternatives:
- Forbearance: This allows you to make partial payments or no payments at all for a few months. You'll be expected to catch up later.
- Reinstatement: Reinstatement allows you to make-up any missed payments in a lump sum and then continue paying your monthly obligation as before.
- Revised repayment plan: The lender adds the missed payments to future payments on a pro-rated basis, plus interest. These increased payments can be paid back over a period of time until you are current.
- Mortgage modification: The lender can change the terms of your mortgage to allow you to make smaller monthly payments. These could include: extending the term of the loan, which would automatically lower the monthly payment; adding missed payments to the balance of the existing mortgage; or turning a rapidly rising adjustable-rate mortgage into a more manageable fixed-rate loan. Sometimes it's possible to use a combination of the above.
If the lender doesn't think you can repay the loan, no matter how it's restructured, it will turn down your request. Now it's time to ask for a short sale. That allows you to sell the house for less than you owe on the mortgage with the lender agreeing to write off the difference.
Lenders are willing to do that when they'll lose less money on a short sale than with a foreclosure.
If your bank or mortgage company won't accept any of these options, bankruptcy becomes the last of the last alternatives.
A Chapter 13 filing not only stops the foreclosure process but can require your lender to accept a revised repayment plan that gives you more time -- usually three years -- to catch up on your loan.
You'll need a bankruptcy attorney to assess your situation and decide if that makes sense for you.
But the bottom line is clear: Don't assume there's nothing you can do no matter how tough your financial situation has become. Relatively few borrowers who fall behind on their payments lose their home to foreclosure. Do whatever you can to avoid being one of them.