How to stop foreclosure
One of the most frequently asked questions by struggling homeowners in today’s economic crisis is ” how to stop foreclosure?” With the national unemployment rate still at 10%, millions of Americans across the country are finding it very difficult to manage their monthly mortgage payments. Whether you are in the construction or mortgage field it does not matter, work is just not there for many individuals. Other than work other factors such as subprime mortgages have caused a mass wave of foreclosures to sweep the nation.
Many brokers would tricked their clients into loans that looked very affordable at first, but later would leave them in a world of distress. A lot of these borrowers had a small down payment or just not enough credit to qualify for a conventional fixed rate loan.
It is crucial for borrowers to be aware that there is solutions out there that can help prevent foreclosure from taking place. The process of trying to prevent this event from taking place is extremely confusing for most individuals. One very important thing to keep in mind while going through this process is that each state will have its own set of foreclosure laws. Therefore, the requirements and timelines lenders will have to follow to complete this task will vary from state to state. To get a better view of your states specific laws you can check out www.foreclosurelaw.org or Realtytrac to learn more.
Ok, so back to the question, “how to stop foreclosure?”
Below we will list a few of the most common and effective ways to prevent this event from taking place. But keep in mind that for some people this will be impossible to avoid, it is always the investor of the loan that will have the final say.
The hands-down best way for an individual to prevent foreclosure from taking place is through a loan modification. Whether this is referred to as a loan modification, mortgage modification, loan workout, or loan restructuring, they are all one in the same. With this type of assistance the lender will work with the borrower to help bring their account current and possibly even lower their current mortgage payments as well.
This is a perfect solution for people who really can afford their home, but just not the current loan they have obtained. Also if you have defaulted on the loan due to temporary struggles, negotiating this type of assistance will help resolve that issue.
First of all to qualify for this type of assistance you must be able t prove that you have a current financial hardship that is making it difficult for you to manage your payments. This will need to be explained in detail in the hardship letter you will provide as part of the submission package to your lender.
Your hardship must show that you can afford your payments they were lowered or if you just need the missed payments rolled to the back of the loan. For individuals looking to catch up on missed payments you can try requesting a forbearance or repayment plan to bring the account current. With this you will be on a payment plan for 3-12 months to take care of the late fees and also possibly roll some of the dues into the loan.
With a loan modification you may be able to lower the interest rate, turn an ARM loan into a fixed rate, bring your account current, and possible have the loan extended out to 40yrs to help keep your monthly payments as low as possible. Therefore, if you really want to keep your home but just need assistance managing your loan, a loan modification should most definitely be your first choice when trying to avoid foreclosure. Below we will discuss non-profit organizations and government plans that may be able to help you achieve your goal
Many people are not aware that there are actually non-profit loan modification companies that show great results. This is probably one reason why so many people get suckered into loan modification companies that are really just a scam.
- Thousands of brokers are out there illegally charging borrowers for services they are not even performing.
The FTC has been heavily involved shutting these unscrupulous firms down, and they have been warning consumers to stay away from these companies which are charging their clients an up-front fee before the services are performed.
These companies target homeowners that are going through foreclosure or have had a Notice of Default recorded with the county. Since these are public records, mortgage brokers find it quite easy to locate struggling borrowers and send them packages stating they are here to help and guarantee a loan modification. Please folks do not be convinced by anyone claiming they guarantee you will achieve a loan modification. As well all know this is never guaranteed!
As far as non-profit organizations go we have found two very reliable sources that have saved thousands of homes across the country. These two firms are called Neighborhood Assistance Corporation of America (NACA) and HOPE NOW. Both have showed great results and develop good relationships with their clients.
If you decide to join our forum here on Loansafe.org/forum you will find that we have a section that is dedicated strictly to NACA and their services. They have done a great job helping the people of Main Street, and they even have employees in the forum daily to help out members with any questions they may have.
The Making Home Affordable was established early last year by the federal government to help prevent foreclosure and keep homeowners in their homes. Using billions of dollars in taxpayer funds they made an effort to encourage mortgage servicers to make it easier to modify loans, and to do so with great terms. But despite all of the money put into this program and the efforts on the government’s behalf, this program is not on its way to helping nearly as many people as originally expected.
For the MHA program you will be required to go through a three to four month trial period prior to achieving permanent assistance. A vast majority of the borrowers who enter this trial plan do not get a final decision from their servicer until after about six to ten monthly payments on this plan.
While these homeowners are sitting quietly waiting for an answer, the mortgage servicers are reporting their account late each month and also accumulating tons of fees if they do not get approved for a permanent modification. Even though the guidelines state that the borrower should not be reported late if they enter the trial while current on their payments, these banks are not following the rules in anyway.
They are reporting to the bureaus and denying borrowers for permanent assistance even if they have met the requirements 100%. So there is much confusion as to whether or not this program is providing help or just adding to our already destroyed housing market.
However, there are some people who do get past the never ending trial period and achieve a permanent modification. You will find quite a few individuals who had success with this program in our self-help forums here on Loansafe.org/forum.
Therefore it is possible to get a loan modification under this program, but I can tell you from experience it is going to be very stressful and the process drags out for many months going through the trial. So you will need to make a decision and decide whether or not you want to apply for this program or just a regular in-house modification. Success can very well come either way.
- Eligibility from the US Department of Treasury:
Loans originated on or before January 1, 2009.
First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.
All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
Modifications can start from now until December 31, 2012; loans can be modified only once under the program.
Loan Modification Terms and Procedures”
- Words from the Obama Administration:
“The Obama Administration’s Making Home Affordable program will offer assistance to as many as 7 to 9 million homeowners making a good-faith effort to make their mortgage payments, while attempting to prevent the destructive impact of the housing crisis on families and communities. It will not provide money to speculators, and it will target support to the working homeowners who have made every possible effort to stay current on their mortgage payments.”
It is our duty here a Loansafe.org to make all homeowners aware there is a significant amount of financial scams out there targeting credit, debt, and especially mortgages. Please be wary of any company charging an up front fee for their services. The FTC has been cracking down on these firms over the last year for their unscrupulous ways.”
For more information check out the governments Making Home Affordable website.
Other than a loan modification, a short sale has got to be the next best way for a struggling homeowner to prevent the devastating affects of foreclosure. Because the value of homes has gone down such a significant amount this has become a very useful route for many people.
A short sell takes place when the mortgage lender allows the borrower to sell their property for less than the outstanding balance of their mortgage. Sometimes the lender just has no choice but to sell the property or take a major loss if the home is auctioned off. This will also allow both parties to avoid the long, stressful, and very expensive foreclosure process.
But be aware that because the lender is allowing you to sell the home for less than what is owed, there will more than likely be some consequences. First off, a borrowers credit rating is going to be affected because of this action, especially if the loan has become delinquent while in process of trying to sell the home.
If the loan happens to fall many months behind while waiting for the sell to go through, credit can be damaged almost as much as it would through a foreclosure. Vice-versa credit scores will only go down a small amount if the borrower remains current while finishing this process.
Also the lender is more than likely going to issue a 1099c for the deficiency balance once the sell goes through. This is the difference between the outstanding balance of the loan and the amount the home sold for. Many mortgage professionals advise any homeowner that wants to pursue this option to first consult with a local real estate agent or attorney to discuss this issue. Any legitimate real estate attorney will provide a free consultation to go over this matter.
Another way to help avoid the devastating affects of foreclosure is through a deed in lieu. This is an event where the homeowner agrees to transfer the title of their home to the mortgage lender, and in return the homeowner will be released from the obligations of the loan.
This is very beneficial for the homeowner because the negative affects to ones credit rating will be much less than that of a foreclosure. At the same time the lender benefits as well because they can avoid the expensive and lengthy process that comes along with repossessing the property.
However, the borrowers credit rating can be affected up to 250 points going though a deed in lieu. They may also be liable for tax consequences as well depending on whether they have a recourse or non-recourse mortgage.
For these reasons we always suggest to first exhaust all options we listed above before going this route. It would also be very wise to contact a local real estate agent or attorney before applying for this to get a better idea of how it will play out.
However, for some individuals there may be no other option but then to just let the house go. Many people in this position are saving up as much money as possible until there home is auctioned off and they are forced to rent elsewhere. But remember the solutions we discussed above and do not give up the fight until you have exhausted all options.
- We strongly encourage anyone that is potentially facing foreclosure to come and join our free self-help forums here on Loansafe.org/forum.
Registration is free and you will join a community of over 26,000 homeowners and professionals that are figuring out ways to manage through these struggling times. You will find all the information you could possibly need about the foreclosure process, short sales, loan modifications, deed in lieu, etc.
About Evan Bedard
