Foreclosure laws were enacted in order to protect homeowners and to give them every opportunity to keep their homes. The key to avoiding foreclosure is to act as quickly as possible. The sooner you act, the more options there are available to you. Also, keep in mind that, as long as the home is in foreclosure, additional fees and costs will continue to be added to the amount you owe. So, the sooner you can bring the loan current and stop the foreclosure, the better off you will be.
If your home loan is in default and your lender initiates a foreclosure, the most obvious solution it so to work out a reinstatement plan. Once your lender starts a foreclosure, you will have a period of several months before your home is sold at a foreclosure sale. During this time, you can work out a reinstatement plan with your lender. Under a reinstatement plan, you will make regular monthly payments in an amount that will cover the usual monthly payments on the loan, a portion of the amount you are in arrears on the loan, and a portion of the foreclosure fees.
The foreclosure will proceed until you have completed the reinstatement plan. Once you make all payments under the reinstatement plan, your loan will again be current and the foreclosure will stop. Everything will go back to normal, and you will then continue to make your regular monthly payments on the loan.
If you are unable to work out a reinstatement plan with your lender, or if that is simply not an option for you, here are five tips to help you avoid foreclosure:
1. Take out a personal loan.
One problem with reinstatement plans is that they require you to make very large monthly payments during the reinstatement period, generally several hundred dollars more than your regular payment. Assuming that you were having problems making payments before the foreclosure, making even larger payments during a reinstatement plan period may be difficult or impossible. A better option might be to take out a personal loan which you can repay over a longer period of time and with smaller monthly payments. Consider taking out a personal loan from a friend or family member in an amount sufficient to bring your home loan current, pay the foreclosure fees and stop the foreclosure. Another option is to take out a personal loan through a lender. If you have poor credit, you may be required to put up collateral for the loan, such as your automobile or other property.
Another alternative, if you have a 401(k) plan or another pension or retirement plan, may be to borrow from your retirement plan in order to bring your home loan current and save your home. Many retirement plans have provisions for emergency loans. Check with your retirement advisor and see if this may be an option for you. If so, you will be able to borrow the money necessary to save your home and then repay the funds back into your retirement plan from your paychecks over a period of time.
2. Take out a home equity loan or refinance your mortgage.
If you have sufficient equity in your home, you may be able to take out a home equity loan in order to bring your loan current and stop the foreclosure. There are a couple of drawbacks to this option. First of all, while the home is in foreclosure, it may be difficult to find a lender who is willing to make a home equity loan on the property. Second, the interest rate on such a loan may be high, so, again, your combined monthly payments on the mortgage and home equity loan may be more than you can afford. In order to minimize these problems, take the loan out only for the amount necessary to bring the mortgage current and to put you in a position to begin making the monthly mortgage payments on time. You may also be able to find a lender who will allow you to make interest only payments until such time as you can refinance your mortgage and repay the loan in full. Whatever you do, do not let a lender talk you into taking out a home equity for more than you need to accomplish the purpose of stopping the foreclosure.
Although it may be difficult to find a lender willing to do so while the home is in foreclosure, it is also possible that you may be able to refinance your current loan. This is especially true if you have a good credit and payment history, but have been suffering temporary, short-term financial problems. If you have been in the home for a sufficient period of time, have a good employment history and income, and up until now, have a decent credit history, you may be able to find a lender who will refinance the mortgage. In this way, the first mortgage will be paid off in full, you will have a completely fresh start, and you may even come away with a few extra dollars in your pocket.
3. Generate extra income.
Once your home is in foreclosure, you will probably need to come up with two or three months payments to cover the arrearages on the loan, as well as steep foreclosure fees and expenses. This may amount to several thousands of dollars. The best and fastest way to pay this balance and bring your loan current may be to liquidate another of your assets. If you have a second car that you can do without until you get back on your feet, consider selling the car in order to stop the foreclosure and save your home. If you have a time share, a vacation property or valuable jewelry or collectibles, it may be worth selling them in order to bring your home loan current without putting yourself further into debt.
Another alternative is to take a temporary second job for a short period of time, perhaps several months. In this way, you can bring the loan current before the foreclosure sale, either under the terms of a reinstatement plan, or outside a reinstatement plan. You may be able to claim exemption from having taxes taken out of your second paycheck and use all of the funds from your second job toward paying the arrearages and foreclosure fees so that your loan is current before the date of the foreclosure sale rolls around.
4. File for bankruptcy protection.
Depending on your financial circumstances, you may wish to file for bankruptcy protection. Bankruptcy laws, like foreclosure laws, were enacted in order to protect consumers. If you are going through a difficult time financially, are unable to work something out with your mortgage lender and see no other alternatives, bankruptcy may be available in order to protect your home and give you a fresh start. Once you file for bankruptcy, your lender will not be permitted to proceed with the foreclosure without first petitioning the United States Bankruptcy Court for permission to do so. The Bankruptcy Court will make every attempt to help you work things out with your lender so that you can keep your home, unless it determines that, under your financial circumstances, it would be impossible to do so.
5. Sell the property.
If you have a family member who is financially able, who is creditworthy and who is willing to help, you might consider selling the home to the family member for the amount necessary to pay off the existing loan. You can agree in advance with the family member that you will rent the property from him or her for a specified period of time, perhaps two years, while you get back on your feet financially. Your family member will obtain a new loan on the property which will pay off the existing loan. You can then lease the property back, with an option to buy, for a monthly rent sufficient to cover the new loan payments. At some point in the future, once you have had an opportunity to get on your feet and re-establish creditworthiness, you can purchase the home back from your family member for an amount agreed upon in advance. This will be an investment for your family member as well. You can agree in advance on a purchase amount which will allow your family member a specified amount or a share of the home's equity at the time of the sale back to you.
Another option may be to sell the home outright and move on with your life. Our society places a high value on home ownership as the American dream. However, home ownership is not for everyone. Owning a home is very expensive. In addition to monthly mortgage payments, homeowners are responsible for paying property taxes and homeowner's insurance. Additionally, when the roof leaks or there are plumbing problems or termites, homeowners do not have the luxury of asking a landlord to make repairs. The homeowner is responsible for making and paying for all such repairs. When you are having trouble making your monthly mortgage payments, chances are the funds are not available to make necessary repairs or improvements or even to perform routine home maintenance. This can create a very stressful situation. Finally, home ownership takes away a certain amount of freedom and mobility. If you decide you want to move to a new area, or your company transfers you to a new city or state, it is not always so easy to sell your home and make a move. Also, if you decide you want to downsize or simplify your life and pay less for a dwelling, you have to first sell your home. You cannot simply give thirty days notice and find a less expensive place to live.
Depending on your circumstances, the best option might be to sell your home before the foreclosure sale. This way, you can get a better price for the home than a foreclosure sale would bring. By selling the home yourself, you may be able to keep your equity, walk away from the sale with a few extra dollars in your pocket and regain your sense of freedom.
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