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How to Stop Foreclosures

Foreclosure can happen to anyone. Sometimes all it can take is a missed payment on your mortgage, and you may find yourself facing a possible foreclosure. But there are plenty of ways to avoid a foreclosure as well. By acting quickly and knowing your options, you can stop a foreclosure at almost any stage. In fact, many foreclosures happen because homeowners simply give up and give in to foreclosure proceedings. As long as you're willing to take control of the situation, there's always a chance to stop a foreclosure and keep it from hurting your credit down the road.

What are Foreclosures?

While this may seem like a simple question, many homeowners aren't aware of how foreclosures really work. The first step in knowing how to stop a foreclosure is knowing what they are and how they happen, so you can take the proper steps to stop them. Foreclosures occur when a homeowner defaults, or fails to make payments, on their home mortgage loan. As a means of collecting the outstanding debt, the lender will file for a foreclosure, which will allow them to sell the homeowner's property publicly, and then use the sale proceeds to cover the unpaid loan debt. However, foreclosure means that the lender is assuming that since you missed a few mortgage payments, you're not ultimately going to be able to pay off the loan. You may only be experiencing a temporary financial setback, but to the lender, a foreclosure may seem like the only option.

Avoiding a Foreclosure

The key to avoiding a foreclosure is letting the lender know that you do intend to pay off your loan. In almost every case, a lender will be more than willing to work with a homeowner in default to actually help them avoid foreclosure, since the lender actually stands to lose a great deal of money on a foreclosure sale of the property. Foreclosure homes can sell for as little as 10% to 50% of their actual value, which means big losses for the lender. This is a fact that always works to the homeowner's advantage. But you must be proactive! No one is going to be able to help you out of a foreclosure but yourself, so it's up to you to take the situation into your own hands, and here's how.

Know the Laws

In some areas, going into default can mean missing only one payment, while in others, you may have to miss payments for several months before a lender. It's always important to know your local laws and regulations regarding foreclosure sales, so be sure to learn about state foreclosure laws in your area. Make notes of the time the law allows you to pay off your debt before a foreclosure sale is scheduled, and be sure to know how much time you are allowed before the sale can occur. These can be crucial details that can help you plan how you're going to deal with the impending foreclosure.

Step 1: Call the Lender

After you've learned about foreclosure laws in your state, the first step you should always take is to call the lender. As soon as you receive a Notice of Default from your lender or a local court, you should immediately call them and explain to them that you are aware of the missed payment. Explain to them why you missed the payment, and describe any financial hardships you're facing. Be honest. In almost every case, the lender will appreciate you dealing with the default quickly and be much more willing to work with you to rectify it. But even better than contacting a lender after you default is contacting them before you default. If you know you're going to miss a payment, don't just let the deadline go by! Call your lender and tell them of your situation. They'll always be willing to listen and work with you. Whatever you do, don't ignore the Notice of Default! If you're receiving mail or phone calls from your lender, answer them immediately. Even if you think you're going to miss more payments in the future, dealing with it up front will always make the lender more willing to help you, instead of just pursuing a foreclosure against you because you ignored them.

Step 2: Negotiate, Negotiate, Negotiate

Many homeowners facing a default are able to avoid a foreclosure by negotiating forbearance with the lender. Forebearance means you work out a special repayment plan with your lender that is affordable. This allows you to stay in your home and pay off your back debt on a schedule that is convenient, sometimes while even avoiding late payment penalties. Usually it involves just adding an additional amount on to your future mortgage payments until the missed payment is repaid. In very rare cases, a lender may even offer debt forgiveness on past missed payments, provided you keep up with all other payments and don't default again. This case is quite rare, but it goes to show that you can accomplish a lot just by negotiating with your lender.

Refinancing and Loan Modification

Loan Modification

If you don't see yourself able to keep up your current loan payments, it's often possible to negotiate to modify your loan. In most cases, this would mean refinancing, but in some cases a lender may allow a note modification, which modifies your existing loan to a more manageable interest rate, thus lowering your monthly payments. Refinancing involves taking out a new mortgage at a better, lower rate, and using that new loan to replace your old one. This process can take some time, and is subject to a bank's approval, but in many cases this is the best way to ensure you stay on track with future payments. If your lender can't offer you a refinanced loan, try applying for refinancing mortgage loans with other lenders. In many cases, banks will compete for you business, and if you can secure a new loan with a lower monthly payment, it's always for the best.

Partial Claims Loans

Foreclosure Loans

If you have a government-sponsored mortgage loan, you may be eligible for a partial claim loan. Essentially, this is an additional loan that allows you to pay back your missed payments over a longer period of time at a low rate, making it easier to work off your extra debt over a longer period of time, instead of straining you financially with higher monthly payments until the debt is paid off. Partial claim loans are only available to certain borrowers, so be certain to contact your lender and look into the possibility to see if you are eligible.

Tips for Stopping Foreclosures

If you've tried to work out an alternate payment plan with your lender and there is simply no way for you to keep meeting payments, there are still ways to stop a foreclosure from happening. A foreclosure can have a serious impact on your credit score and your ability to secure a mortgage loan in the future. While a foreclosure is never the end of the world, it's worth avoiding, and here are some options to help make that happen.

Sell Your Home

Foreclosure Loans

For many homeowners facing foreclosure, selling their home ends up being a great option. Selling the property before a sale occurs, as a pre-foreclosure, allows you to independently make back money on your home and pay off your debt yourself. It serves the same purpose as a foreclosure sale, but you completely avoid a foreclosure on your record, and in many cases, you walk away from the sale with money left over! If continuing to pay your mortgage simply isn't an option, looking into selling your home can be your best option.

Pursue a Short Sale

Unfortunately for some homeowners looking to sell to avoid foreclosure, due to market conditions, their property may actually be worth less than what they paid for it. This means they owe more on their mortgage than the home itself is worth. Therefore, selling it at market value still wouldn't cover the amount owed to the lender. In this case, many homeowners pursue a short sale. A short sale allows you to sell your home for the best price you can get, and then pay that money to the lender as a means of settling your debt, even if it is less than you owe. A short sale will still affect your credit, but not nearly as much as a foreclosure. Short sales must be agreed to by lenders, so it's best to talk to them about the option as soon as you can. From there, an agent will help you sell your property, as well as to negotiate the price with a lender.

Sign a Deed-in-Lieu of Foreclosure

A deed in lieu of foreclosure essentially means that you sign the deed to your property over to the lender without the hassle of a foreclosure auction or the foreclosure process. This should only be a last resort, as a deed-in-lieu will affect your credit just as much as a regular foreclosure. However, it can be a good option for buyers who don't want to deal with the stress of the foreclosure process. Once you sign the deed over to the lender, it's up to them to sell the home as they see fit.

Bankruptcy

Declaring bankruptcy is often no better for your credit than going through a foreclosure, but if you file for Chapter 13 bankruptcy, you may be able to stay in your home for up to an additional 5 years while you pay off your debt. To learn more about bankruptcy options, visit our Bankruptcy information page.

Stay Informed!

Dealing with a foreclosure can be hard. No one wants to have to worry about paying off additional debt or the possibility of losing their home. But the key is to stay positive, and stay proactive! There are plenty of ways to avoid a foreclosure, and many homeowners are able to settle their debts and stay in their homes. But if you don't act, a foreclosure won't just go away. So contact your lender and see what your options are as soon as making mortgage payments becomes a problem. The sooner you address the problem, the better off you'll be. Stay informed about your financial options, and you too can stop a foreclosure from affecting your life!

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