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.

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