One of the reasons that foreclosure is so sad, is that the situation can often be avoided. When a homeowner begins missing payments, they may automatically give up and assume that foreclosure is inevitable. Unfortunately, many fall into the trap of ferociously avoiding their lender, hoping to bide time until they can figure a way out of the financial mess that they’re in.
This is the worst possible thing you can ever do if you are behind on your payments. Lenders want to help; they don’t want to go through the process of foreclosing on a home. They want you to be able to make your payments just as much as you do. Here are some options to consider before you decide to let the bank foreclose on your house. See: Should I File Bankruptcy Before or After Foreclosure?
A borrower should call their lender immediately when they know they will not be able to make a payment. Borrowers may have the option of renegotiating their loans. With this in mind, insist on negotiating a plan that will enable the loan to be back in service. Homeowners tend to think lenders are the enemy—in fact, they aren’t. Lenders want their borrowers to do well; they don’t want to deal with defaulting loans just as much as you don’t. Read: What To Do After Foreclosure.
Prior to a foreclosure sale, borrowers maintain the right to reinstate a delinquent loan; this option gives homeowners the chance to make up back payments on top of any incidental charges such as filing fees or legal expenses. Paying off the reinstatement amount will cancel the foreclosure.
Forbearance is the postponement for a limited time of a portion or all of the payments on a loan in jeopardy of foreclosure. Some mortgage companies are able to arrange a repayment plan based on the borrower’s current financial situation. You may qualify for this option if you have recently lost employment. Borrowers facing foreclosure should call their lender and find out if they are eligible for forbearance. Read about: Life After Foreclosure.
To redeem a loan, the borrower must obviously pay off the loan in full. One option to accomplish this is by having a friend or relative cosign, or, help in exchange for equity or another financial arrangement. If enough equity in the house is available that will allow the borrower to fully pay off the mortgage, then selling is the best option.
This is the time to do a short sale, in which the bank agrees to “forgive” the debt if you sell the property to a third party. Lenders are more willing to agree to this, as they do not have to deal with the expenses that come with foreclosure procedures.
Filing bankruptcy will not get rid of the possibility of foreclosure; however, it can halt the process. Current foreclosure processes must stop immediately upon the filing of bankruptcy. Bankruptcy is a serious matter, and should be seriously considered and discussed with a realtor and an attorney. Deciding to let your home be foreclosed upon and sent to auction without exhausting other options is probably the worst thing you can do. Your credit score will haunt you for years, you will lose your home along with all the payments you have put into the home. Before you throw in the towel, be sure you have explored and tried every option above before letting your home go.
Rachel says
Due to a job loss and some unexpected medical bills, I am behind on my mortgage payments by several months. What are my options at this point? Will the bank simply foreclose on my home, or do I have some way to get caught back up?
Angela Walker says
The first step — always the first step — is for me to contact my lender and explain the situation. I would tell them that I’m ready to get back on track, and I’m looking for a way to get caught up on the missed payments. At this point, they would probably present me with one of several options. These are referred to as mortgage workout solutions, because they allow you to work yourself out of unpaid debts.
A repayment plan is one of the most common solutions offered by lenders. Basically, this is a way for me to make my normal mortgage payment each month, plus a little extra to make up for my missed payments from the past. Basically, I am taking the amount owed for back payments and “sprinkling” it over my future payments — at least until I am current on the loan.
There are other solutions that your lender may present to you, such as reinstatement and forbearance. In fact, these two strategies are often used together. You can think of reinstatement as a single lump-sum payment to get caught up on your missed mortgage payments from the past. Forbearance is when the lender temporarily reduces or postpones your payments, usually with the understanding that you will make a lump-sum payment to get caught back up.
But here again, the first step is to contact your lender and see what options are available to you. From what I’ve gathered, a lot of homeowners are afraid to contact their lenders. I don’t understand why, because everyone has the same goals in this particular scenario — to bring the loan current and to keep the homeowner in place. In situations like this, where the financial problems are only temporary, the lender will almost always work with you to resolve the issue. It’s the most affordable thing for them to do, and it saves them a lot of paperwork and hassle.
So contact your lender first. Explain that you’ve had some temporary financial setbacks, but you are now ready and willing to get caught up on your payments. Ask them if they can create a repayment plan for you, and there’s a very good chance they will do it.