In today’s volatile economic climate, it is not unusual for homeowners to fall behind on their mortgage payments. Yet missing one or even several payments doesn’t condemn you to foreclosure.
Proactive steps can be taken to avoid losing your home since mortgage lenders rather work with you to rectify the situation than have to assume responsibility for the property. The following actions can be taken to prevent foreclosure:
Prepare Your Case File
Organization is key when avoiding foreclosure. If you’ve fallen behind on your mortgage payments, it is crucial that you have all documentation related to your home on hand. This should include your loan documents, your deed or trust, and your promissory note, as well as the following:
- Monthly mortgage statements
- Payment records
- Escrow statements
- Property tax information
- Insurance information
- Correspondence from your mortgage holder
- Copies of letters sent to your mortgage holder
Know Your Mortgage Rights
After you’ve collected your mortgage documentation, it is necessary to understand what the consequences of nonpayment are. Check your mortgage contract and promissory note for the following information:
- A reinstatement clause that allows you to rectify the situation by making outstanding payments
- Monthly late charge amounts
- Fees added to late payments
Federal law states that mortgage holders cannot initiate foreclosure proceedings until after you’ve failed to pay your monthly payments for four consecutive months (120 days).
Organize Your Financial Information
As well as your mortgage documentation, it is essential to organize all of your other financial data. Gather all your recent pay stubs, bank statements and federal tax returns, as well as any other income statements you might have, such as social security, rental income or alimony. It is also necessary to calculate your total monthly income, which includes all monthly gross and overtime wages, self-employment income, unemployment benefits, social security, child support or alimony. Additionally, you should estimate your monthly expenses, including mortgage, credit card, car, student loan and insurance payments, as well food, utility, HOA/condo fees and entertainment expenses. This will enable your mortgage holder to determine your eligibility for foreclosure alternatives.
Assess Your Monthly Budget
After estimating your monthly income and expenses, it is necessary to revise your spending and determine where you can make changes. For example, avoiding extraneous expenses like buying coffee or eating out are easy to manage. Bring your coffee and lunch from home. You may also want to modify your entertainment or leisure time spending, such as your gym membership or your cable bill. For those facing foreclosure, temporary sacrifices are vital. It is necessary to categorize what is a need and what is an option. You should also consider consolidating credit card debt by applying for a card with lower interest rates or negotiating a lower monthly payment on your current card
Consider Your Options
The following are some options to consider in order to avoid foreclosure:
- Contemplate a loan modification, which can mean refinancing or reducing your current interest rate. Often a mortgage holder can add outstanding payments to your current balance to offer some temporary relief and avoid foreclosure.
- Consider a forbearance agreement and a repayment plan, which involves a temporary suspension or reduction of your mortgage payments. A mortgage holder may agree to grant you a forbearance period after which you can pay all outstanding payments in full or arrange a repayment plan.
- Submit a request to refinance your mortgage loan if you anticipate not being able to make payments. The government provides a Home Affordable Refinance Program (HARP) that can reduce your monthly mortgage payments.
Contact Your Mortgage Holder
If you anticipate missing a payment or have just missed one, contact your mortgage holder immediately to review your alternatives to foreclosure.
Consult a HUD Counselor
The U.S. Department of Housing and Urban Development (HUD) provides free mortgage counseling. Contact your local HUD office to find out about foreclosure prevention programs.
Know Your State Foreclosure Laws
Since foreclosure laws vary from state to state, it is imperative that you know your rights during a foreclosure proceeding. Your state laws will also stipulate what the foreclosure timeline is so you can adequately seek counsel or consult with your mortgage holder.
Sell Your Home
If you anticipate an irreparable mortgage default situation, consider selling your home. It is not an easy decision, but if you have equity in your property you may be able to settle your debts and walk away without damaging your credit. You might also consider a short sale, in which you sell the home at a loss with the aid of your mortgage holder, or a deed in lieu of foreclosure, which allows you to transfer the title to the property to the mortgage holder in order to cancel all debts.