Forclosure Survival Guide

I wrote this guide to help you choose and implement the best strategy for your situation. Every situation is different, and your exit strategy will depend on that situation and circumstances.

  • No word strikes greater fear in a homeowner’s heart than “foreclosure.” I wrote this survival guide to help distressed homeowners think about foreclosure. I provide different pathways and options depending on your circumstances, where you live, and the kind of mortgage loan you have.

  • If you want to keep your home, your best option is to work something out with your mortgage lender in a way that will satisfy both of you. If, on the other hand, you’re ready and willing to leave your property, you can follow the path that will leave you relatively well-off rather than destitute. I can help you with those EXIT Strategies.

  • Options for working with your bank include changing the interest rate or the term to lower their monthly payments. Your options largely depend on what entity—like the FHA, the VA, the USDA, Fannie Mae, or Freddie Mac—owns or guarantees your loan.

    Fannie Mae and Freddie Mac (the government-supported enterprises that own or back many mortgages in the United States) offer the Flex Modification program.

  • Other banks offer in-house (“proprietary”) modifications, forbearance agreements, or repayment plans. I’ll explain how homeowners can ask for relief under these programs.

  • For others, the best strategy is to leave your home rather than put money into what could be a fruitless cause. If you take this approach, it might make sense to stay in your home throughout the foreclosure process—the longer you can live in your home without making mortgage payments, the better off you’ll be financially. But if you’re contemplating walking away, you should be aware of—and take into consideration—the consequences, like a possible deficiency judgment that will remain on your credit report for seven years or more. A foreclosure on your credit report can keep you from being able to finance another mortgage for many years to come.

  • There are options for avoiding foreclosure without damaging your credit, including SubTo financing, Seller financing, and Hybrid financing. A short sale or deed in lieu of foreclosure are options, but both leave negative entries on your credit report.

    HOA Foreclosures

    Besides mortgage foreclosures, Homeowners’ Association (HOA) foreclosures are becoming more common. Across the country, more and more HOAs are starting foreclosures against community residents for unpaid fees or fines. Some states, like Colorado, passed laws to protect people in disputes with their HOA. This edition discusses HOA liens, foreclosures, and what you can do if your HOA threatens you with foreclosure.

How it Begins

Once you do fall behind, you’ll probably have a few months before your lender starts the foreclosure process, thanks to federal mortgage servicing laws. The fact that foreclosure is a process—sometimes a long one—is good news for you. You don’t need to panic. If you act quickly, you’ll have time to plan and evaluate your options. The more time you have, the better.

If your only problem is a few missed payments, your lender will probably be willing to let you get current over time. If you’ve missed four or five payments, your lender might not be flexible—but you still might be able to work something out. Don’t wait for your loan servicer to contact you. As soon as you realize you’ll have trouble making your mortgage payments, it would be best to start working on the problem. This chapter will show you how.

What happens next depends on whether you’re trying to stay in your home or are resigned to moving on. If you want to keep your home, your first move should be to find a HUD-approved housing counselor to help you determine what options are best for you, such as a modification, a refinance, or another loss mitigation solution. (“Loss mitigation” is what the mortgage-servicing industry calls the process where borrowers and their loan servicer work together to avoid a foreclosure.)

Housing counselors provide foreclosure-avoidance assistance and won’t charge you for it. Go to www.consumerfinance.gov and search for “Find a housing counselor,” or call 800-569-4287 and ask for a HUD-approved counselor. Your HUD-approved housing counselor will help you determine which option is best for you, explain what documents you must provide to your mortgage company, and contact the mortgage company on your behalf.

Indecisiveness Can Cost You Big Time

If you’re likely to lose your house, failing to face this reality immediately can cost you thousands of dollars. Here’s why: Any mortgage payments you make now will do you no good if you lose your house in foreclosure. Assume your mortgage payment is $2,000 a month, and you scrape together enough money each month to pay your mortgage because you don’t want to lose your house. If $2,000 is more than you can afford and you end up in foreclosure, your payments will have been for nothing unless you somehow find a way to get current on your mortgage payments or file and complete a Chapter 13 bankruptcy. On the other hand, if you had stopped paying your mortgage six months earlier, you could have saved $12,000 for relocation costs and other expenses.

Don’t panic—and don’t get scammed. Foreclosure rescue scams are common. Almost without exception, you’ll be worse off with these scams than if you let a foreclosure go through. (To find out how scammers work and what to look for, see “Don’t Let a Foreclosure ‘Rescue’ Company Scam You,” below.)

Your Options If You Are Facing Foreclosure

  • Reinstate the existing loan by making up the missed payments, plus costs and interest.

  • Arrange a loss mitigation option that keeps you in the home (such as a forbearance, repayment plan, or loan modification) using the help of a free HUD-approved housing counselor.

  • Redeem the property before the sale, like by refinancing the entire loan.

  • Delay the foreclosure sale by filing for Chapter 7 or Chapter 13 bankruptcy.

  • Take out a reverse mortgage if you qualify.

  • Fight the foreclosure in court and either stop or delay it.

  • Work with “Korben” on one of the following:

    • Complete a SubTo, Seller finance, or hybrid finance.

    • Complete a Lease Back option to stay in your home and redeem it at a future data.

    • Complete a short-sale.

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