subject: How to Prevent Home Foreclosure [print this page] How to Prevent Home Foreclosure How to Prevent Home Foreclosure
There is no doubt home foreclosure is one of the worst experiences anyone can endure. Not only do borrowers lose their most valuable asset, they also endure extensive credit damage and may be held financially responsible for deficiency amounts if the property sells for less than owed on the mortgage note.
Individuals who want to avoid home foreclosure must become proactive the moment they cannot afford to pay loan installments. Borrowers should begin their home saving process by contacting their lender's loss mitigation department. The type of foreclosure prevention strategies offered will depend on various factors including number of delinquent payments and borrowers' ability to cure mortgage arrears and make future installments.
Borrowers who cannot afford to stay in their home can still engage in foreclosure prevention. Banks may allow borrowers to enter into a short sale contract or deed in lieu of foreclosure. Short sales are somewhat complex, but essentially allow borrowers to sell their home for less than the balance owed on the loan. Deed in lieu allows borrowers to return their home to the lender.
The downside of deed in lieu and short sale transactions is some banks hold borrowers accountable for deficiency amounts between the sale price and loan balance. This can often amount to several thousand dollars which takes years to repay.
When borrowers are unable to pay deficiency amounts in full, banks can obtain court ordered judgments which are reflected on borrowers' credit reports and can prohibit them from obtaining any type of financing until the judgment is paid in full. Individuals entering into real estate short sales or deed in lieu agreements should attempt to attain 'Payment in Full' agreements which release them from paying deficiency amounts.
Mortgagors who want to save their home from foreclosure are required to submit financial records to their assigned bank loss mitigator. Lenders review the information to determine which foreclosure prevention strategy is best suited.
When borrowers are facing temporary financial setbacks, banks may offer the option to defer mortgage payments. Banks normally defer payments for 2 to 3 months. Some lenders roll deferred payments to the end of the loan, while others require mortgagors to pay the full amount of deferred payments once the deferral period expires.
Banks might also offer a real estate forbearance which temporary reduces or suspends mortgage payments. Forbearance plans usually extend for 2 to 3 months, but banks can extend forbearance agreements for as long as 12 months.
When forbearance plans expire, borrowers must pay the full amount of reduced or skipped payments. Should real estate taxes or mortgage insurance become due during the forbearance plan, borrowers must pay expenses out of pocket if they do not have sufficient funds in their escrow account.
Forbearance agreements are best suited for borrowers who have overcome financial problems, but need time to get back on track. Otherwise, mortgage forbearance could potentially end as a home foreclosure because borrowers were incapable of paying missed loan payments.
Banks may offer loan modifications to borrowers who need to reduce payment amounts. Loan modifications temporarily alter loan terms through reducing interest rates or principal amounts. Borrowers must undergo a loan modification approval process which can take several months to complete.
Mortgage refinance can stop foreclosure as long as borrowers are able to qualify for a new loan. Refinancing into a home loan with reduced interest can save borrowers a substantial amount of money over the duration of the loan. However, borrowers must pay costs associated with entering into a new loan. Common closing costs include property inspections, real estate appraisals, legal fees, and loan origination and application fees.
Contrary to popular belief, mortgage lenders prefer to avoid foreclosing on real estate. The foreclosure process is time-consuming and costly. Borrowers who take action early will have more options available to prevent foreclosure than those who ignore phone calls and collection letters.
