FORECLOSURE FACTS:
What to do when you’re behind on payments
There’s a great chance that someone on your block is in foreclosure,
behind on their mortgage payments, or simply cannot afford their home (which will most likely lead to foreclosure). So what
do YOU do if you fall into this situation? HelpSaveMyDollars.com has compiled a few suggestions on how to fight your way out
of a foreclosure quarrel!
First and foremost, you cannot ignore the situation. If you are one, two or even three (hopefully
not more!) months behind on your mortgage, that’s a sign that foreclosure may be coming your way, as bad as that sounds! So
if you’re behind, don’t pretend that everything is good and dandy, because it’s not. Chances are you’ll be hearing from your
lender stating that foreclosure is imminent. In this case, you MUST call the lender. You should also call the lender if
you are behind on mortgage payments, or if it is becoming increasingly difficult for you to make payments. In this call to your
lender, try to negotiate a deal (for more negotiating tips, visit our section on negotiation, Bargaining 101). Remember,
your lender/bank is in the loan business, not the real estate business—they don’t want your home! Tell the lender that you’d
like to work out some sort of a deal/plan with them in order to avoid foreclosure at all costs! Here are a few things you might
want to ask your lender:
1. Can I do a loan modification? A loan modification simply means you and your lender
will agree on new terms of the loan. These new terms could mean a new interest rate (if you currently have an adjustable rate
mortgage, where your interest rate fluctuates, under a loan modification, you might be able to change that to a fixed interest rate)
or a different time period/life of the loan. Unlike refinancing, loan modifications are done without closing costs (which can
be 1-2% of the loan amount. Expensive!).
2. Can I do a short sale? Here is a simple example of a short
sale: Let’s say your home is currently worth $200,000, but your mortgage amount is $300,000. This means that even if you
sell your home, you’ll still owe $100,000—That’s no good! This is where a short sale would come in handy. A short sale
would be that you would sell your home for the $200,000 and the bank would simply “forget about”, or absolve the $100,000 that you
really owe them. This is a great option because you can walk away from your home and have a fresh new start, without the perils
of foreclosures. Now, you don’t get any money for your home, it all goes to the bank. But you also don’t owe anything
either (where if the bank didn’t agree to a short sale and you owed $300,000 on the loan and sold the home at market value, which
in our example is $200,000, you would still owe the $100,000). Lenders may be reluctant to agree to a short sale, but try to
convince them. (Note: The numbers are just an example and for demonstration purposes. As long as your mortgage amount
exceeds the market value of the home, you’ll most likely qualify for a short sale).
3. WORK WITH ME…PLEASE!!! – This may
sound strange, but if your lender won’t agree to a loan modification or short sale, try to find out if there is anything the lender
can do. Try to ask if maybe they can just lower your interest rate or try to refinance and have them lower the closing costs. Be creative!
Now you can also sell your home if you’re facing foreclosure. Again, the short sale would be best, but if
your lender won’t let you do a short sale, try to sell your home and get as much money as you can. Remember: it’s a good idea
to sell your home by owner, so you can avoid the real estate agent’s fee.
Let’s say your bank is extremely inflexible and seems
as if they don’t care about your situation (this happens a lot). Try contacting your Senators, Congressmen or local Assemblymen
to see if they can be of assistance to you. Explain your situation to them to see if they can contact your bank or a federal
or state agency on your behalf.
Taking action is essential when you are about to experience a foreclosure. Remember, you
not only lose your home with foreclosures, your credit score plummets too. The fact that you were foreclosed upon will remain
on your credit report (a compilation/list of the history of all your financial transactions) for about 7-10 years. There is
a way out of foreclosures if you are proactive. Only you can get yourself out it!
© 2010 HelpSaveMyDollars.com All Rights Reserved.
Negative Equity Crisis
Since equity is the difference between the value of your home and what you owe on the mortgage, negative
equity is when the value of your home is less than the amount you owe on the mortgage! This is an unfortunate, but extremely
common situation for families throughout the country. In fact, First American CoreLogic says that almost one-quarter of those
who have a home mortgage in the
Some people argue that it makes no sense to continue to stay in the home, even if you can afford the payments,
because you are paying and investing in a hopeless entity – the home will not spawn any monetary value to you should you sell the
home in the near future (because you owe more than what the home is worth). For those who are underwater and cannot afford their
mortgage payments, some walk away from their homes – they stop paying their mortgages until the home goes into foreclosure. While this is not an advised approach, it is morally not right and it will ruin your credit score, it is becoming more of a common
occurrence to those who are underwater and cannot afford their mortgage payments.
What do you do if your home is underwater?
First you want to make sure that your home is appraised correctly. Many times people assume they are underwater. Be sure to double check that! If you are definitely underwater, there are several options. First, contact your lender
immediately – don’t wait! Explain your situation to your lender. See if your lender is willing to do a loan modification (as
explained in our other Real Estate article towards the bottom of this page), where you and your lender agree to new terms on the mortgage. Loan modifications are difficult to get and they are available usually to a certain income. But definitely call your lender
and try!
Short sales are the other option (as explained in the article below). This is where you sell the home at the market
value, and whatever other money you owe to the lender, is absolved. Let’s say you sell your home near the market price of $100,000,
but you owe $175,000 on the mortgage – that $75,000 (the difference between what you owe and what the house sole for) is absolved. Basically you sell the home and walk away with nothing, but you also owe nothing!
You have to take action when faced with negative
equity, especially if you can’t afford the monthly payments. Read our “Foreclosure Facts” article below for even more information.