There are many reasons why people face foreclosure. Los of job, overextending your credit, divorce, medical crisis not covered by health insurance are a few of the many reasons people fall behind on their payments. The key is not to panic or bury one’s head in the sand, it is to get the right information and see if there are options for avoiding this calamity to your family and your credit standing. It is a lot worse to have a foreclosure than to just have late payments. There is also the possibility of deficiency judgements, and even a 1099 being sent to the IRS for your “forgiveness of debt” which is treated like a gain. Try to follow the following steps as recommended by The Department of Housing and Urban Development.
First off don’t ignore the problem. The further you fall behind the harder it will be to make up the payments. If you use credit cards just to keep going that may not be a good solution. Credit Cards should be a very short term solution. Remember that using high interest rate financing to pay off lower rate debt is usually a bad idea. Look to your budget to see if there are ways to lower your expenses, where a short term loan may be a way of coming back to financial health, but don’t just pile up debt that cannot be offset by a reduction in expenses
If you get the first letter from your mortgage company warning you about lack of payment, or if you know that making payments will be very difficult, immediately call your mortgage company. If you get a letter be sure to read it. The mortgage company does not want you to go into foreclosure. it is in their best interest to find ways to keep you going. They typically offer excellent tips about how to deal with this. Ignoring the letters will not stand up in court once it reaches sheriff’s sale.
Know your rights! Every state has different laws and time frames. This can give you a game plan of how long you have to establish a work out program. Typically this does not involve making small payments to catch up, however Congress is trying to establish some programs that if they are passed might be something that can help you. Valuable information about foreclosure options are on the Internet via this hyperlink.
You can contact a HUD-approved housing counselor. They can help you to understand your options. Try calling (800) 569-4287 or TTY (800) 877-8339. They can also assist you with prioritizing your spending. After health care, your home should be your first priority. You may have to do without cable tv, or eating out but those types of expenses can always be reinstated once you get yourself back to financial sanity. Also look to assets that can be liquidated to bring in cash, or even the possibility of a second job that can bring in more income. This can have a benefit to dealing with a mortgage company about refinancing your loan. It may not represent lots of money, but it does show your lender your willingness to to make sacrifices to keep you home.
Lastly, beware of scams. Just like there were predatory lenders, in this age of increased foreclosures there are predatory firms claiming they are foreclosure prevention companies, and are in existence to help poor unfortunate homeowners in trouble. They may charge large fees, or get you to sign away your rights with legal documents you don’t understand. Look to professional advice from a HUD approved housing counselor, a trusted real estate professional with expertise about foreclosure, or even an attorney who understand real estate law.
If none of this works or if you read this article too late, please read the companion article on this site about doing a short sale, also known as a pre-foreclosure. This can allow you to at least avoid a foreclosure on your record, and keep you from having a deficiency judgement or a tax problem.