Facing a potential foreclosure is scary. Maybe you’re struggling financially and don’t know how to keep up with your mortgage payments.
For those who don’t know, a foreclosure is when you stop paying your mortgage payments and your lender takes ownership of the house. It’s a homeowner’s worst nightmare.
Fortunately, there are things you can do to prevent it. Here are 7 tips to help you avoid foreclosure:
- Notify your lender
First, take initiative and notify your lender as soon as you recognize financial trouble ahead.
“Most lenders don’t want a foreclosure either,” says foreclosure attorney Devin Sawdayi. “So they’ll often work with you by lowering your mortgage payment or extending its due date. But you have to let them know first. The earlier you contact them, the more likely they’ll be able to help.”
When you contact your lender, give them a summary of your financial problems. This can include:
- Recent pay stubs
- Profit & loss statements
- Bank statements
- Federal tax returns
- Proof of job loss
Anything that reveals your financial distress will help your lender better assess your situation so they can help you.
- Know your mortgage rights
Next, know your mortgage rights. Review your loan documents to see what the consequences of falling behind on your mortgage payment are. These could include a late fee, options for reinstating the loan after catching up, and other fees.
It’s best to set up a case file by compiling all your mortgage account information into one place. This can include:
- The mortgage
- The promissory note
- Monthly billing statements
- Record of payments
- Escrow statements
- Property tax information
- Insurance information
- Correspondence with the mortgage servicer
You’ll also want to learn your state-specific foreclosure laws and timelines. For example, are foreclosures judicial or non-judicial where you live?
And remember, under federal law, lenders can’t start the foreclosure process until you’re over 120 days behind on your payments.
- Get help from a foreclosure assistance program
Foreclosure assistance programs like the US Department of Housing and Urban Development (HUD) and NeighborWorks have a lot of resources that can help you avoid foreclosure. For example, an HUD-approved housing counselor can:
- Explain your legal options
- Help you organize your finances
- Tepresent you in lender negotiations
- Learn about foreclosure prevention options
Learn about all your foreclosure prevention options (aka loss mitigation). Here are a few to consider:
- Forbearance—This is when the lender lets you halt your monthly payments temporarily until you get back on your feet. The amount owed remains the same, but you get to pay it at a later date. This was a common solution for many during the COVID-19 pandemic.
- Refinancing—This involves taking out a new loan for your remaining debt to get a better interest rate and loan terms.
- Loan modification—This is when the original lender changes the loan terms. Most of the time, it involves extending the payment due date or lowering the interest rate.
- Repayment plan—Similar to a loan modification, a repayment plan allows you to pay off the remaining debt in installments.
- Short sale—This is when you sell the home to the lender and use the funds to pay off the rest of the mortgage.
- Deed in lieu of foreclosure—If all else fails, a deed in lieu of foreclosure lets you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process and minimize damage to your credit score.
If you want to learn more about your foreclosure prevention options, visit KnowYourOptions.com.
- Tighten up your budget
Relieve your financial burden by tightening up your budget. Cut out unnecessary expenses like unused subscriptions, coffee, eating out, and more. You’ll be surprised at how much you can save with a little self-discipline.
- Sell other assets
Generate more money to put toward your mortgage by leveraging your other assets. For example, sell nonessential vehicles, jewelry, and other expensive items that could generate money to put toward your mortgage.
- Avoid foreclosure prevention companies
Lastly, avoid foreclosure prevention companies. Many are scams that try to get desperate homeowners to sign over the deed to their property. And even the legitimate ones charge exorbitant fees for what you can learn for free from a mortgage counselor. So it’s best to avoid them altogether.
Final advice
At the end of the day, there are many ways to stop a foreclosure. Review them carefully and consider getting the professional advice of a mortgage counselor or lawyer. They’ll help you identify the best solution for your situation.