Are you having trouble paying your mortgage? Learn how to Avoid Foreclosure and Keep Your Home!
If you are having trouble paying your mortgage for any reason, or expect problems, you should work with your loan servicer (the company that collects payments on your mortgage) or other experts to find a solution now. If you fall behind and don’t take action, the lender will foreclose on your home. If that happens, you may lose your home and all of the money you have already invested in it. The sooner you act, the better the chances you will avoid foreclosure.
The Center for Responsible Lending estimates that over 2 million American households with subprime mortgages have lost or will lose their homes by the end of 2010. Their neighbors will suffer financial losses, too, as these foreclosures cause nearby property values to drop by $356 billion.
TALK TO YOUR LENDER OR SERVICER
Talking to the lender, or loan servicer, the company that collects the payments, should be one of your first steps. The earlier you call, the better your chance to work out a solution. Here are some options:
- Loan Modification. Loan servicers can help you catch up on late payments or amend your mortgage to make it more affordable. For homeowners who face losing their home, a loan modification is often the most effective way to avoid foreclosure.
The options include: - Adding all the missed payments to the loan amount and changing the monthly payment to cover the larger loan.
- Giving you more years to pay off the loan, lowering the interest rate, and/or forgiving part of the loan, to lower your monthly payment.
- Switching from an adjustable rate mortgage to a fixed rate mortgage, so you can avoid higher monthly payments.
- Requiring amounts for taxes and insurance to be included with your monthly mortgage payment so you avoid big bills in addition to your mortgage.
Other options include these:
- Repayment Plan. If you can start making payments to catch up, the lender may let you pay an additional amount each month until you are caught up.
- Forbearance. Lenders may let you make a partial payment, or skip payments, if you have a reasonable plan to catch up. Tell your lender if you expect a tax refund, a bonus, or a new job.
- Reinstatement. Reinstatement refers to making a payment that covers all your late payments, usually at the end of a forbearance period.
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Sign Over the Property to the Lender in Exchange for Debt Forgiveness (often called “deed in lieu of foreclosure”). This can hurt your credit, but is better than having a foreclosure in your credit history.
Watch out for companies that ask you to sign papers that waive your right to pursue legal actions against them—especially if you expect to continue struggling with your home loan.
HOW REALTORS® CAN HELP
REALTORS® are in the business of helping people become homeowners and want to do everything they can to make sure you can afford to stay in your home.
- The best and least expensive option may be working with the company that collects payments on your mortgage (the loan servicer, which often is not your original lender).
- If your loan servicer isn’t willing or able to help, check into refinancing your current mortgage with another lender. REALTORS® can help you find lenders that make fair and affordable loans.
- Ask your REALTOR® or counselor if there are state and local government and local nonprofit organization foreclosure prevention programs and who to call.
- Counseling agencies are in the business of helping borrowers like you.
- Remember, you should shop just as carefully for a mortgage as you do for a car or anything else you buy. Getting the lowest possible rate and fees can save you many thousands of dollars over the life of the loan.
- Sometimes the only option is selling the home. Of course, no one is better at helping a seller than a REALTOR®, like JoJo. It is better to sell than go through foreclosure because (1) you can profit from any equity that remains in the home, and (2) it will be easier to qualify for credit in the future and buy another home.
Be wary of advertisements like “Cash for Houses/Any Situation” or “We Buy Houses for Cash.” Many of these are scams that falsely promise rescue from a foreclosure. Unfortunately, the “rescue” often involves the homeowner signing over the house and the family being evicted from its home.
WHAT IF I CAN ONLY SELL MY PROPERTY FOR LESS THAN I OWE MY LENDER?
If you are struggling with your home loan and the value of the property is less than the mortgage amount, make sure you explore all options with your servicer, as well as an attorney or a housing counselor. In some cases, REALTORS® can help explain to the lender why it makes sense to sell the property for the best price and then forgive the remainder of the debt.
Until recently, the amount of debt the lender cancelled was treated as income when you filed your tax return. REALTORS® and others helped pass legislation that will prevent this tax burden from being placed on eligible homeowners who are relieved of their obligation to pay some portion of their mortgage debt between January 1, 2007 and December 31, 2012. Full relief is available only if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Other limits also apply; consult your tax adviser or IRS guidelines for details. Some lenders may require you to sign a promissory note for the difference between the value of the home and the amount owed. Before you sign any documents, seek the advice of a housing counselor or lawyer.
COUNSELING RESOURCES
Nonprofit organizations and other experts dedicated to helping consumers avoid foreclosure can be invaluable.
- Consider contacting your attorney or a local Legal Aid office, especially if you have reason to believe you were the victim of questionable lending practices. A good place to start is at www.nw.org.
- The U.S. Department of Housing and Urban Development (HUD) website has a list of HUD-approved counseling organizations, by state (www.hud.gov/counseling). We recommend that the list be used as a starting point to find good counselors. You also can call 800.569.4287 or TDD 800.877.8339.
Watch out for questionable counseling companies who advertise that, for a minimal fee, they will hire a lawyer to defend the foreclosure in court or negotiate lender assistance on your behalf. You should call a HUD-approved counseling organization, a local NeighborWorks® organization, or 888.995.HOPE before you pay or sign anything.
