This post is provided by Dylan Clegg, an editor from a leading financial
Few homeowners sign mortgage documents for a new home while thinking they might eventually lose the house to foreclosure. Unfortunately, poor mortgage lending practices, unemployment, divorce, health issues and relocation have resulted in foreclosure for people in all income brackets in a variety of neighborhoods across the country.
According to leading analytics and business services company, CoreLogic, there were over 860,000 completed foreclosures in the United States between January 2011 and January 2012. Since the onset of the financial crisis in September 2008, there have been approximately 3.3 million completed foreclosures nationwide.
Early Action is Vital
No homeowner wants to face the nightmare of losing the roof over his or her head. Attempting to avoid the situation by dodging phone calls and ignoring letters from the mortgage company is not the answer. Borrowers facing financial difficulties should take action before they find themselves on the brink of losing their homes.
Many people do not realize that the road to foreclosure begins when a mortgage payment is only 16 days late, prompting the lender to attempt contact and arrange a repayment schedule. If the payment becomes 30 days overdue, the homeowner can expect serious collection attempts. At the 90-day past-due mark, formal foreclosure proceedings will likely commence.
Homeowners should consider taking advantage of the help offered by nonprofit counselors who can offer advice in avoiding foreclosure. The U.S. Department of Housing and Urban Development, or HUD, offers a number of resources for homeowners facing foreclosure, including free counseling services nationwide. A list of HUD-approved housing counseling agencies is available at www.hud.gov.
Importance of Communication
The homeowner with financial difficulties should maintain communication with the mortgage lender. The lender would far prefer receiving payment to initiating the foreclosure process. In the case of short-term financial trouble, the lender might allow the homeowner to pay a delinquent payment over a period of months.
Sometimes mortgage lenders agree to adjust the terms and conditions of the original loan to help the homeowner afford mortgage payments. This modification might involve lowering the interest rate, extending the amortization schedule or adding the delinquent payments to the loan and reamortizing the new loan total.
Homeowners anticipating financial difficulty may want to consult real estate agents for an estimate of the home’s market value and length of time needed to sell it. When the home is worth less than the amount owed on it, a short sale might be approved by the lender. A short sale involves selling the house at fair market value, with the proceeds going to the lender, who will forgive any amount still owing. A short sale hurts a homeowner’s credit rating, but it does not inflict the damage of a foreclosure.
Borrowers who cannot take advantage of these methods to avoid losing their homes still have options. Those borrowers who cannot afford to make up delinquent payments and legal fees but who can meet the regular monthly loan payment might consider filing Chapter 13 bankruptcy. This option will temporarily derail the foreclosure process, compelling the mortgage provider to offer a more flexible repayment plan.
Those homeowners who need more time to sell their houses might think about refinancing with a hard money loan from a private lender. These loans are based almost entirely on the equity contained in the property and typically come with high rates and fees. Hard money loans are valuable for gaining homeowners extra time to find buyers for their homes, thereby avoiding foreclosure.
The key to avoiding foreclosure is to tackle the problem before the situation gets out of hand. Homeowners who attempt to ignore the reality of their dire financial situations are more likely to accumulate huge legal bills and destroy their credit ratings.
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