Facing Foreclosure?
· Do Nothing- Not really a choice to take action, more of a resignation to your fate.
· Pay Off the Loan- One of only two ways to keep the home yours. That option isn’t available to most of us. If we could pay for it outright, we wouldn’t be in foreclosure.
· Pay Off the Arrearages- The other way. Bringing the account current will certainly make the lender much happier. Lenders will often work with you to do this, if you discuss it with them.
· Sell the Home- This should cover the two points above- Paying off the loan and settling the arrearage. The downside is unlike those two choices, you don’t (usually) get to keep the home.
The first step is to decide now that doing nothing isn’t going to help the problem. Doing nothing will cost you the house, any equity you may have in it, and your credit rating (which will rear it’s ugly head in places that it has no business, like your auto insurance rates, as well as future loan applications for many years).
The next thing you need to do is make the toughest call you will ever have to make: Can you afford to keep the home and make the payments, or do you need to reduce or remove that debt from your budget?
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If you have not yet fallen into default on the loan, you may try contacting a loan officer and attempting to refinance the home for a lower interest rate. This is only feasible if you still have good credit and owe less than the value of the home. Where most run into trouble here is they refinance more than the debt (this can be a good thing for certain circumstances, but this isn’t one of them. Stick to bringing your housing costs to a point where they’re affordable before you add on more debt). If you’ve decided to act early enough and you want to keep the home, this is your best and easiest course of action. Refinancing pays off the loan and replaces it with a new one; You will need to have good credit and not currently have any arrearage with the Leinholder on your mortgage, however if you are holding an ARM loan, you can usually replace this with a fixed rate mortgage that may cost a bit more, but won't go up next year.
If you have already defaulted or are in a state of arrears with your lender, then the above option isn’t available to you. Unless you can get a loan from rich Aunt Flo, no one will provide you with a loan for that much money. You can pay off the arrearages and bring your mortgage current, but this can be difficult unless the reason you fell behind was a one time problem. You will need to contact your lender or loan servicer and explain your situation, and they are usually willing to work something out with you to bring your account current. However, if your interest rates have exceeded your income, you might never get caught up. Even if you do, next month you will be right back into default. Most lenders don’t want your house, they want your money. If you talk to them about the reason for your default, most of the time they may be willing to work with you to restructure your loan which will enable you to bring the account current, and often convert that ARM loan into a stable, fixed rate loan.
Both of the above options can allow you to keep the house. The last one doesn’t (usually).
Once you’ve received a Notice of Trustee’s Sale (or Sheriff’s Sale in some areas) you are pretty much down to settling the entire debt. Selling does accomplish both settling the arrears as well as paying off the loan, but in most cases it also means you’re moving. If you are in a foreclosure, you need an agent to assist you with the sale. Your agent needs to be familiar with the foreclosure process, and if you owe more than the home’s market value, your agent needs to know how to negotiate a “Short Sale” (selling the home “Short” of the debts owed). Selling before it’s too late can save your credit, and might even get you some cash with which to start the next stage in your life. Short Sales are a tricky and time-sensitive type of real estate transaction, and requires more than the usual amount of care. After you’ve received the notice of sale, you have 60 days to get the home sold. You’ll need an agent familiar with the “Highest Lowest Value” of the homes in your area, and the property needs to be priced to sell as quickly as possible. If there is enough equity in your home, you may be able to sell your property to a private investor, who may lease the home back to you (possibly even Lease with the Option to Purchase it back at a later date).
Regardless of your situation, you will need to decide on a course of action. If you think you might still be able to refinance, talk with a Loan Officer. Refinance to a fixed rate and build your household budget around your new rate. If that option is no longer available, make the decision to save yourself years of credit misery. Contact an agent who has experience in foreclosure and short sale transactions. The sooner you can get the home on the market, the better, and waiting will only compound the problem. Wait too long and the lenders will be owed more in late fees and arrearages than any equity you may have had in the home.
My team has experience with this type of sale, and I would be happy to consult with you, free of charge or obligation, as to what your options might still be. Please take the time to fill out the form below, indicating “Foreclosure” in the subject. I’ll be in touch with you shortly to schedule your consultation and to address any questions you may have.
You may yet have time to save your home, or at least your credit. But you’ll need to weigh your options carefully.
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