Home Buying
Avoid Foreclosure
Your Options If You Are Behind On Your Mortgage:
Negotiate With Your Lender
Lenders don’t want to foreclose on homes. It’s expensive
for them, and can drag out for months in many states. At the same time, they don’t
want to waste time and money on risky borrowers who are chronically late with payments
— and who may not be taking good care of the home they may have to later take back
and sell.
Negotiating with the lender, therefore, can be difficult if you either have a history
of late payments or if you can’t show the lender why this is an isolated incident
and is not likely to happen again. If your financial problems are truly temporary
– you were laid off but have
now returned to work, or you had unexpected medical
bills, for example — you may be able to work something out.
If your lender is open to negotiation, they may agree to take smaller payments for
a short period of time, and then add the rest to the balance of the loan. Or they
may agree to interest-only payments for a time.
In some cases, they may even agree
to add a couple of missed payments to the end of the loan.
If you are going to try to work out a modified payment arrangement with your lender,
it’s important to present them with factual – not emotional — information about your situation, and be willing to back it up with documentation.
If you find it difficult to negotiate on your own, and many people do, get help
from a professional organization like www.HomesaversUSA.com. Whatever you do, don’t
keep falling further and further behind without contacting your lender or
getting outside help.
Pre-Forclosure Sale
If your problems aren’t temporary, you may need to sell your home. If you have built
up equity in your home that you would lose in a foreclosure, then this may be your
best bet.
If you do have enough equity in your home to be able to afford to pay a real estate
professional’s fee (usually 6% of the sales price, sometimes lower), it’s a good
idea to interview three real estate professionals and let them handle the sale for
you. Statistics show that homes sold by professionals sell faster than ones where
the owner is making the sale.
Make sure you get any agreements in writing from them as to what they will do to
market your home. And don’t necessarily go with the agent who tells you she can
sell your home for top dollar. Choose the one who you believe will do the most to
help your home sell quickly at a fair price.
If you’re going to go this route, talk with your lender and let them know that you
have put the home up for sale. Ask if they will hold off on their foreclosure proceedings
longer since you have the house listed.
If you don’t have much equity in your home, you may need to list your home for sale
by owner – also known a “FSBO.”
Beware: This can be a lot of work. Visit your local library for books on selling
your own home and implement as many strategies as you can. You don’t want to add
to your stress by having no buyers show up to take a look at your home.
Short Sales
You’ve probably seen the signs or ads in the newspaper: “We buy homes for cash,
any condition!” These ads are usually placed by real estate investors looking for
bargain homes. If you’ve borrowed on your home recently, you may not have a lot
of equity. But an experienced real estate investor may still be able to buy your
home and give you enough cash to cover your moving expenses. They do this through
a “short sale.”
In a short sale, the buyer will prepare documentation
showing the lender that you are in financial hardship and will end up in foreclosure
anyway. They will then offer to buy the home for less than you owe on it.
Let’s say, for example, your home is worth $75,000 and you owe $60,000 on your first
mortgage and $10,000 on the second for a total of $70,000. The buyer may convince
the first mortgage lender to settle for $65,000 and the second lender (who may get
nothing in a foreclosure or bankruptcy) to settle for $3,000. They may even pay
you $500 or so to cover your moving expenses.
A short sale will help you avoid foreclosure, but it will still appear on your credit report as paid for less than the total amount and that will be a negative remark.
On the other hand, if the documents are properly drawn up, you won’t risk a deficiency
judgment if the home was sold and didn’t bring in enough to pay the lenders.
To make sure you are protected, ask the seller if they will pay to have your documents
reviewed by an attorney of your choice.
