How To Avoid Foreclosure
Strategies to stop foreclosure
If you've fallen behind on your mortgage payments, it's essential that you find out how to avoid foreclosure so you don't lose your home. There are numerous strategies you can use to avoid or stop foreclosure, depending on your exact situation. It's important to act early, because delaying the process can worsen the situation and disqualify you from certain solutions. The number one rule when it comes to how to avoid home foreclosure is to take immediate action if there is any risk of the bank reclaiming ownership of your house or condominium.
About Foreclosure: Why it Happens
If you stop making your mortgage payments, your bank will send you letters warning you that they will have no choice but to initiate foreclosure proceedings. This process culminates with the bank retaking control of your home, a legal process which relieves you of all ownership claims. If you have a second mortgage with a different financial institution or mortgage brokerage, any proceeds from the sale of your home will be split between the two companies, depending on their respective ownership stakes.
The foreclosure process starts when your lender files a Notice of Default, indicating that you have failed to make your mortgage payments. If you do not reach an agreement with your bank, they will initiate foreclosure proceedings.
Options to Avoid Foreclosure
The first thing you should do if you think you're going to fall behind on your mortgage payments is notify your bank. They will be more accommodating if you're honest with them, and you will have to work with them in order to stop foreclosure, so you're better off starting negotiations on the right foot. You should also contact a government-endorsed housing agency for further assistance and to learn your rights and obligations under the law.
Do not leave your home abandoned if you are facing foreclosure. This may cause you to forfeit any ownership claims you may otherwise have qualified for.
Depending on the degree to which you've fallen behind, you have five main options to avoid foreclosure:
- Forbearance. This functions as an acknowledgement that you missed payments and a plan to help you make up for them. Penalties may be added to your mortgage.
- Modifications to your mortgage. Sometimes, you can restructure your mortgage to lower the amount of your monthly payments to make them easier to manage.
- Partial mortgage claims. This is part of a government assistance program that you may qualify for, in which you can get a one-time loan to avoid foreclosure and bring your mortgage account current.
- Pre-foreclosure real estate sale. With this option, you will sell your home for less than the outstanding amount of the mortgage to ensure the bank at least gets partial value for your home.
- Deed in lieu of foreclosure. This is a last-resort option in which you sign ownership of the house back to the bank; it does cost you your home, but it's not as bad for your credit as full foreclosure.
You should pursue these avenues if at all possible, since a foreclosure is very damaging to your credit rating. Learning how to avoid foreclosure will also help you keep your home, preventing you from having to upheave your family and move to a new location.