Saving Your Home from Foreclosure
Potential loss of your home is the single most urgent problem
you may face if you are having financial difficulties. Foreclosure
not only means the loss of shelter, but also loss of many years
investment to create home equity and a livable family environment.
For this reason, you will always want to deal with a foreclosure
problem as your highest priority if you are having financial problems
and you own a home. Here are some tips for preventing foreclosures:
1. Reexamine your budget — If it means saving your
home, you need to consider eliminating unnecessary expenses. Food,
mortgage payments, utilities, essential transportation and unavoidable
health related expenses should be your highest priorities, though
even these expenses can be examined to see if reductions are possible.
Also look at ways to increase your income, including loans from
pension plans, food stamps, fuel assistance, a part-time job, unemployment
or disability income.
2. Make timely home mortgage payments, if possible — If
you cannot pay all of your bills, you should make mortgage payments
first, after food and utilities. This is because the mortgage company
has the right to foreclose and take your home while other creditors
generally do not.
3. If you fall behind on your mortgage and the creditor returns
your partial payments, save as much money as possible each month
toward your mortgage — When you fall behind on payments,
the mortgage company has the right to refuse partial payment.
If you can afford partial payments but the mortgage company refuses
to take them, the money should be put aside rather than used
for other bills. The money that is set aside will help you negotiate
with the mortgage company later, and even if nothing can be done
to save your home, you will have some money saved for moving
expenses.
4. Resolve any disputes you may have concerning the amount
due. Use legal assistance if necessary — Some foreclosures
occur because of mistakes made by the mortgage company. When
you disagree with the amount the mortgage company says you owe,
you should immediately try to address the problem by contacting
the mortgage company. Provide the documentation they request
and keep copies for yourself. If you are not satisfied with the
result (or if there is an unreasonable delay), you may want to
get legal assistance.
5. Ask the mortgage company whether it will agree to a temporary
or permanent change to your mortgage terms (called a "workout") — A
workout is often the best solution to your financial difficulties
because it allows you to resume your mortgage payments. There
are many different types of workouts, including repayment agreements
(getting caught up over time) and loan modifications (changes
the loan terms which do not change the total debt, but which
reduce monthly payments). The mortgage company will ask you to
send them documents which list your monthly income and expenses.
They will also need supporting information like recent tax returns.
Not all workout proposals will be accepted.
6. Evaluate your refinancing options — Particularly
if you have equity in your home, refinancing may be an option to
avoid foreclosure. There are some loan programs, including reverse
mortgages for older homeowners, which will reduce or eliminate
your monthly payments. Refinancing options should be evaluated
carefully, preferably with professional assistance.
7. Consider selling your house before foreclosure — It
is a good idea to list your home for sale if you are behind on
your mortgage. This is true even when you are pursuing other options.
The reason to consider a sale is that the foreclosure process is
not likely to bring the best possible price for your home. You
will almost always get a better price if you sell your home on
the open market instead of letting it go to foreclosure. If you
owe more to the mortgage company than the home is worth, you will
need to get the mortgage company's permission to sell at that lower
price.
8. Keep track of foreclosure deadlines — If there
is a court case, you will want to take steps to prevent the foreclosure
before a foreclosure sale is held. Once the sale is held, you will
no longer own the property and, in most states, it is impossible
to keep your home. If you have applied to the mortgage company
for a workout, do not let them wait until the last minute to give
you an answer. This prevents you from examining your other options.
If you are considering getting help from a lawyer or non-profit
counselor, do so as far in advance of the sale as possible so that
you can get complete advice.
9. If you are unable to arrange a workout or other satisfactory
solution, consider getting legal help to prevent the foreclosure — Chapter
13 bankruptcy is one of several legal options you have which
may solve a foreclosure problem. (Chapter 7 bankruptcy will delay
but not prevent a foreclosure.) If you decide to obtain legal
help, do it early so that the lawyer will have enough time to
advise you properly. When selecting an attorney, be careful to
find someone you trust even if the fee is slightly higher. The
best way to do this is through recommendations from friends or
family. If no recommendation is available, contact the Lawyer
Referral Service of your local bar association and ask for a
list of attorneys who handle foreclosure defense and bankruptcy.
10. Be realistic about what is possible — If you are
unable to afford the house for the long term, your best option
may be to sell the house. If you have no equity in the house, you
may choose to walk away from it by giving it back to the mortgage
company. You should not waste money which you can use to move,
trying to salvage an impossible situation.
11. Avoid foreclosure scams — By law, foreclosure
of your home will be advertised to the public. Unfortunately, there
are people who read these advertisements, and then offer help to
people facing foreclosure in order to rip them off. You should
avoid sale/leaseback schemes and high rate loans which are offered
as a way out of foreclosure. They will only make things worse.
Requests for high fees or for money to pay the mortgage (payable
to someone other than the mortgage company) are also indications
of scams. In addition, offers of new mortgages as a way out of
foreclosure can lead to disastrous deals which will make your situation
impossible to resolve. If you do sign a mortgage under pressure
of foreclosure, remember that you have three business days to cancel.
12. Get counseling help — The foreclosure process
can be very complicated. In most communities there are non-profit
counselors who may be able to help you avoid foreclosure. If you
cannot afford or cannot find a lawyer, non-profit counseling may
be a good alternative. However, non-profit foreclosure counselors
are not always easy to find. You can call for a local referral
at 1-800-388-2227 or the HUD Office at 1-800-569-4287. You can
also try to get a referral from your mortgage company or local
officials. If someone offers to help, make sure you are dealing
with a legitimate non-profit with experience in default and delinquency
counseling.
Information obtained from New Revised Edition, Surviving Debt:
A Guide for Consumers, from The National Consumer Law Center.
The above information should be understood to be a general
discussion of the subject matter and DOES NOT constitute
a legal opinion about the situation. For further information
please consult a qualified attorney.
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