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When you purchased your home, you no doubt had every expectation of making your monthly mortgage payments until you either paid the house off or sold it.Unfortunately, unforeseen disasters and tragedies happen to everyone from time to time, and it can be difficult, even seemingly impossible, to plan or prepare for them.
If you find yourself in an unexpected predicament concerning your home mortgage payments, you need to take prompt action. Putting things off and hoping they will somehow work themselves out will not accomplish anything.
If you don't take action within a certain period of time, your alternatives will begin to disappear. The worst-case scenario is foreclosure, what happens when your mortgage lender repossesses your home, forces you to move out and sells your home to try and recoup some of their financial losses. If the lender sells your home for less than the amount of your loan, you are often still liable for the remaining debt.
If you are involved in a foreclosure, it is reported to the credit bureaus and will haunt you for years, narrowing your chances of acquiring a decent home loan in the future.
Foreclosure should be avoided if at all possible. Here are some things you can do to avoid going through one yourself.
If you are facing foreclosure . . .Do not ignore letters sent to you by your lender asking for explanations or for the money you owe. Instead you should take a proactive approach by doing the following:
- Call or visit your lender immediately or as soon as you realize a problem is occurring or will occur in the near future.
- Explain what has happened to prevent you from making your payments.
- Have your financial information available. The lender will want to see everything: your monthly income, your expenses, and debts.
- Try to negotiate an alternative plan with your lender. Generally, your lender is the first place to start. These people will be able to tell you what alternatives you qualify for, and since they deal with this kind of problem on a regular basis, they are usually prepared with answers and suggestions.
If things have gone so far that the lender has turned your case over to their legal department, waste no time. Contact the legal department and begin working with them to solve the problem.
If you bought your home through an FHA insured loan, consider contacting a HUD-approved housing counseling agency. These agencies deal with mortgage loan problems all the time. Contacting them might make a difference in whether you keep or lose your home. Information on how to contact one of these agencies is listed at the end of this article.
If you acquired your home loan through the VA, it is in your best interest to contact the Veteran's Administration office nearest you.
There are programs that can help youLenders and HUD-approved counseling agencies have programs set up to help you keep your home in the event of unforeseen personal disasters.
Mortgage modification: This program can help some people by extending the term of the mortgage loan or refinancing the loan. The two together could help you get back on track. Extending and/or refinancing your loan can lower your monthly payment, making it easier for you to catch up. In most cases, these ideas work best if you have experienced and recovered from a financial issue and are simply behind. You will need to be able to afford the new payment or mortgage modification is just a waste of time. If you still can't afford the new payment you'll have to search for a solution besides this one.
Special forbearance: After the lender or counseling agency figures out your particular situation, they may be able to devise a unique repayment plan that is within your means. Sometimes, special forbearance includes a reduction or even a complete suspension of your monthly payment. This type of plan can be put into effect if you have lost your job or had an unavoidable increase in your expenses. In order to qualify for this plan, you will need to prove to your lender that you can make the new payments.
A partial claim: If you have fallen behind in your mortgage payments by more than four months but less than twelve months, and if you are able now to begin making your monthly payments, you might qualify for the partial claim. This means that the FHA Insurance Fund will make a one-time payment to your lender to catch you up to current levels. The lender will file the claim on your behalf and if approved, HUD (Housing and Urban Development) will pay the lender the amount that you fell behind. In this case, you will sign a promissory note and a special lien will be placed upon your property until the note is paid back in full. The repayment for the HUD loan is interest free. It becomes due when you pay off your first mortgage or when you sell your property.
Pre-foreclosure sale: You can avoid foreclosure by selling your property. The appraisal, which your lender will acquire, must state that your home is worth at least 70% of the amount you owe and that the price you receive in the sale is 95% of the appraised value. If your loan is two months in delinquency or more, you succeed in selling the home in three to five months and the new appraisal states that the value of your home meets HUD guidelines, you may qualify for this option, and you may receive assistance with the closing costs.
Deed in-lieu-of foreclosure: With this option, you choose to give back your property to your lender. Although you lose your house and any profit you might have made through selling it, this option saves you from having a foreclosure on your credit report. Seek out this option if you are in serious delinquency on your monthly payments, you cannot qualify for any of the other options listed here, you have tried to sell your house and have failed or you have no other FHA mortgages in default.
Scams abound when foreclosure fears surfaceIt is annoying to think there are people out there who hope that you will be unable to make your mortgage payments. They are ready and willing to rip you off, if you let them. Follow these tips to avoid being victimized.
First, be aware that there are many phony counseling agencies. They look legitimate and act professionally, but they are not legitimate or professional. Beware of any "counseling agency" that approaches you. They have probably found out that you are in danger of foreclosure or have begun foreclosure proceedings. They will offer all kinds of solutions, none of which are free. If they offer to renegotiate a new mortgage payment with your lender, understand that this is something you can do yourself. You don't need any agency to do it for you. See the end of this article to learn how to find a real counseling agency.
If someone approaches you and offers to pay off your mortgage or give you money when your property is sold and wants you to move out and deed the property over to him or her, don't do it! In this scam, if you fall for it, the scam artist does not make any mortgage payments, and the house eventually goes into foreclosure. Generally, the scammer collects rent on your house for awhile and pockets the money. Signing your deed over to someone will not get you off the hook. You will still be responsible and the foreclosure will end up on your credit report. It is much better to deal with the lender or a HUD approved housing counseling agency. If you decide to sell your house to avoid foreclosure, watch out when a potential buyer tries to rush you through the process through intimidation or excuses of any kind. If a buyer makes an offer, get it in writing. And never sign a document that you don't completely understand.
When you try to sell your home to avoid foreclosure, check with your state Attorney General's office or the Real Estate Commission for Consumer Fraud to see if there are any listed complaints about your prospective buyers.
If you are considering allowing someone to assume your loan, you must make sure that you are truly released from responsibility for the mortgage debt and any contracts. The best way to do this is to speak with a lawyer or your mortgage lender.
If someone comes along with a deal that sounds too good to be true, believe your instincts. Most likely, the dealer isn't being genuine and you'll be the one forced to deal with the mess that gets left behind.
HUD Agency Contact Information
The U.S. Department of Housing and Urban Development (HUD)
451 7th Street S.W.
Washington, DC 20410