In a perfect world, your mortgage would always be paid on time. Unfortunately, things happen. Sometimes we find ourselves in unexpected situations that leave you facing a home repossession or foreclosure. Last year in the U.S., the home foreclosure rate was 0.51% which is the lowest the rate had been in years. While the number of people that receive foreclosure notices is much higher, many are able to stop these proceedings in their tracks.
The first thing to remember if you find yourself with this scary reality is that you have options. Remember, your bank doesn’t want to repossess your home. They want this issue resolved, and that means they’re likely willing to work with you to find a solution.
If your home is in danger of being repossessed or foreclosed, don’t delay. The earlier you begin taking action, the more options you’ll have to avoid losing your home. Is your home in jeopardy? If so, follow these steps to learn how to avoid an extreme outcome.
1. Contact Your Mortgage Lender
This step is easily the most intimidating. If you’re finding yourself in a position where your home is at risk of repossession, odds are you’ve been avoiding the calls and letters for a while now. It’s scary to face problems like debt head-on, but remind yourself that your bank wants to work with you.
Think about it this way: the bank wants to get paid. Repossessing a home is a hassle, and they’d much rather come to a solution that works for both parties. Your first step should be to contact your lender as soon as you realize you’re struggling. If you find yourself falling behind on payments, it’s time to call. Lenders have options to help borrowers through these difficult times, and they might be able to find a repayment plan that works for you.
2. Foreclosure Alternatives
To prevent a foreclosure which wreaks havoc on your credit, look into alternatives approved by your lender. From government programs to a short sale, you don’t have to accept your home repossession at face value. Here are a few options that might work in your situation:
- Making Home Affordable – This federal program offers both an option for a loan modification and for refinancing through your lender.
- Principal Reduction Alternative – If your home is now worth less than when you purchased, you may qualify for this federal program. It’s designed to help homeowners reduce the amount they owe on their home.
- Short Sale – A short sale is when the lender allows the homeowner to sell their home for less than the amount owed on the mortgage. This is an effective way to avoid foreclosure. In most cases, the lender will turn the home around and sell it through an auction after the foreclosure process anyway, so they’re amenable to this solution.
For all of these options above, you’ll want to speak to your lender. They will review your unique options and how to proceed if you wish to continue with a federal assistance program or a short sale.
Bankruptcy might seem extreme, but it halts a foreclosure dead in its tracks. When you file a bankruptcy petition, you are free from debt collectors including your mortgage lenders. As soon as your lender is aware you’ve filed for bankruptcy, the repossession process is frozen.
While this doesn’t let you off the hook for your debts, including your mortgage, it allows you more time to recover your finances. Under the law, your mortgage lender and any other creditors need to work with you in good faith to create a payment plan that works for your situation. Before filing for bankruptcy, speak with an experienced attorney to learn how the process would apply to your situation.
If you find yourself facing a home repossession or foreclosure, don’t panic. The majority of homes that receive this notice don’t actually get foreclosed upon. The best way to avoid this extreme outcome is to work with your mortgage lender as soon as you find yourself struggling financially. From there, you’ll want to look into assistance options. Ultimately, you need to stay persistent. Don’t take a foreclosure notice as a death sentence. You still have options until the case is officially closed.