Stop Mortgage Foreclosure
Distressed homeowners in default can stop mortgage foreclosure by using several methods. When homeowners get behind in loan payments, lien holders can and do repossess properties. However, owners can take steps to stop legal repossession efforts before their home is sold on the courthouse steps. Most banks will work with borrowers to stop mortgage foreclosure because lending institutions don't want the house, they simply want to get paid. Banks, credit unions, and mortgage companies are not necessarily in the business of buying and selling houses; but their goal is to make money from interest charged on loans over 15, 20, or 30 years. In the case of owner default and subsequent auction or sale of repossessed properties, the homeowner will not be the only loser. Foreclosures damage the lender's bottom line and adversely affect the local, state and national economy.
The United States housing slump has spawned a record number of foreclosures that not only hurt homeowners, but lenders who cannot always recoup losses. When owners and lenders fail to stop mortgage foreclosure, renters can also be forced to vacate leased properties with very little notice. Evicted tenants can feel a pinch in the pocketbook, since relocating usually means coming up with first and last month's rents, plus a large deposit. While federal and state governments work to stop mortgage foreclosure, if the trend continues, losses to homeowners and lenders could threaten to derail the American economy.
In the real estate market, foreclosure has become a four-letter word. Banks really don't want to repossess a borrower's home and be forced to make properties marketable enough to sell at a profit and recoup loan balances. A lagging economy could cause foreclosed property to stay on the market for years, while lenders lose principle and interest payments. According to statistics, a repossessed unit can cost lenders as much as $50,000 in processing fees and costs to market and liquidate. Additionally, foreclosed homes cause area property values to go down, as vacant lots are left unkempt, rodents multiply and vandalism increases. With these factors in mind, banks and lending institutions are willing to go the last mile with homeowners who sincerely want to save their homesteads. There are several ways to stop mortgage foreclosure: (1) a loan workout, (2) refinancing with a second mortgage, and (3) consumer debt protection through filing Chapters 7 or 13 bankruptcy petitions. Owners should seek counsel from financial management professionals before deciding on either of these options. "Where no counsel is, the people fall: but in the multitude of counselors there is safety" (Proverbs 11:14).
If owners default on payments and fall in arrears, usually after three months, banks can demand repossession of the house, full payment of the remaining mortgage balance, or a lump sum to bring payments current. Homeowners may be able to propose a loan workout to stop mortgage foreclosure, save the equity, and preserve creditworthiness. The terms of a workout depend largely on how far the bank is willing to go to help homeowners. Lenders may propose getting a second mortgage to pay off delinquent loans and restructure payments. Some may even place past due payments at the end of the contract and consent to taking less than the amount in arrears.
To stop mortgage foreclosure, refinancing with a second loan buys homeowners more time. A secondary loan financed at a lower interest rate makes the first note disappear; but owners will have to qualify for the new mortgage either with another lender or the current one. Another strategy for desperate owners in default is to attempt to sell the property to a buyer with excellent credit and plenty of cash. Distressed sellers facing foreclosure may be willing to accept a cash down payment to get properties out of arrears and off of the chopping block; that move alone can save the owner's credit. Investors who purchase distressed homes may offer sellers an opportunity to stay in the home as renters with reduced payments. The advantage to the seller is obvious: consumer credit reports remain unmarred by foreclosure; the option to stay in the home alleviates the pressure, expense, and stigma of relocating; and reduced payments as tenants lift the responsibilities from the poor owner's shoulders and onto the new owner/landlord's.
As a last resort to stop mortgage foreclosure, owners can file a Chapter 7 or a Chapter 13 consumer debt protection petition. A Chapter 7 liquidation bankruptcy allows owners a chance to pay creditors through a court-ordered sale, or liquidation of assets. Bankruptcy court trustees or administrators then dispense debtor assets to pay secured or unsecured creditor claims. Distressed homeowners who file Chapter 13 petitions consent to a three- to five-year repayment plan which restructures debt and makes monthly installments to creditors. The advantage of both filings is that homeowners get to remain in the home under the terms of the case.
A distinct disadvantage to filing bankruptcy is that the owner's credit report will remain tarnished for at least seven to a maximum of ten years. Should the owner ever decide to apply for financing or perhaps, seek new employment, the decision to file bankruptcy could come back to haunt. Prime lenders and future employers sometimes disdain high-risk borrowers with marred payment histories. Before homeowners default on mortgage payments, it would be wise to discuss personal financial issues with lien holders to work out an amenable plan. While many owners fear addressing an inability to honor financial obligations, the problem just won't vanish away. Addressing concerns early enough to work out agreeable remedies can save a lot of heartache and a beloved home.
Ways To Stop ForeclosureOne of the best ways to stop foreclosure is to take action before the mortgage lender does. The possibility of losing one's home is a tremendous fear for most homeowners. A house is seldom just a building on a piece of ground. Emotions and memories reside right along with the family inside the rooms and out on the lawn. People work hard to save for the down payment, get sick at their stomachs after signing a contract, turn moving-in day into a festive event, and then live one day at a time in the refuge and shelter of a place that somehow takes on the family's personality. When the month comes that the mortgage can't be paid, emotions and even panic can overwhelm clear judgment and corrective action. Scripture makes this promise: "Blessed are they that keep judgment, and he that doeth righteousness at all times" (Psalm 106:3). Though the circumstances may look hopeless, this is exactly the time when the homeowners need to look at the financial situation causing the difficulty and begin considering the available options. There are definite ways to stop foreclosure and the homeowner needs to have some knowledge of them.
In recent months, people who contracted for subprime mortgages have found themselves in dire situations. Many opted for a subprime mortgage, with its higher interest rate and more expensive fees, because they could not qualify for a prime mortgage with more favorable rates and terms. Too many of these homeowners are now desperately searching for ways to stop foreclosure on their properties. As the crisis has reached epidemic proportions, affecting property values throughout the country, it's now clear that subprime lenders approved an amazing number of loans to borrowers with poor credit histories and not enough income to support rising mortgage payments. Locked into adjustable rate mortgages (ARMs), these homeowners were shocked at how much a couple of percentage points could add to the monthly payment. Not only that, but when they read the fine print of the contract, the homeowners learned that a hefty prepayment penalty made refinancing or selling the home an expensive process. Adding insult to injury, the homeowners had borrowed such a high percentage of the home's appraised value that any equity was practically nonexistent. As housing prices dropped, many people discovered that they owed more for the house than its worth. At first, banks seemed reluctant to help with these situations, but the numbers of affected people reached practically epidemic proportions and neighborhood property values began to plummet, the industry is more interested in helping homeowners find ways to stop foreclosure proceedings.
Mortgage holders send out a notice of default when payments are missed and before starting the foreclosure process. The notices should not be ignored, no matter how frightening or embarrassing it is to receive them. By contacting the mortgage holder, the homeowner may negotiate ways to stop foreclosure proceedings. The mortgage holder may agree to a repayment plan that spreads arrearage and legal fees over a period of time. For this option to work, the homeowner may need to pay at least half the arrearage and legal fees upfront and then agree to a payment schedule that pays off the balance in about six months. For example, if the delinquency totals $8,000, the lender may agree to a $4,000 payment with the remaining $4,000 spread equally over the next six months. This payment will be in addition to the regular house payment. If the homeowner has an ARM, the lender may agree to a temporary modification of the existing terms. For example, the interest rate may be temporarily reduced. Another option, for both an ARM and a conventional loan, is to extend the amortization schedule. This means that the delinquency is attached to the end of the loan. Perhaps the homeowners planned a mortgage-burning party in 25 years and 3 months. If they negotiate an extended amortization schedule with the lender, that party will be postponed as long as it takes to make up the delinquency. A repayment plan and changes in terms are just two ways to stop foreclosure, but will only work with a cooperative lender.
If the homeowner is unsuccessful in negotiating a settlement with the lender, he or she may need to consider contracting with a professional loss mitigation negotiation. This person is specially trained to assist in these types of situation and may be able to negotiate an agreement with more favorable terms than the homeowner could get on his or her own. Other ways to stop foreclosure include a deed in lieu of foreclosure and having a short sale. In the former, the lender agrees to take back the property instead of foreclosing. In almost every case, any deficiency between the selling price and the outstanding amount of the loan will need to be made up by the former homeowner. For example, the total amount of the original loan plus arrearages and legal fees may equal $175,000. If the lender sells the property for $165,000, the individual still owes $10,000. In a short sale, the house is sold and the lender agrees to accept the purchase price. In negotiating this type of arrangement, the homeowners need to read all the fine print of the contract to ensure they are not liable for any deficiency. Using the same example, if the lender agreed to a short sale and did not include language in the contract holding the homeowners responsible for any deficiency, then the individuals are free of any further obligation. Perhaps one of the worst ways to stop foreclosure is to apply for bankruptcy protection. Experts advise bankruptcy as only a last resort. However, if the homeowners have no other choice due to overwhelming debt, they are advised to seek competent legal counsel before filing a petition with the courts.