Anticipating foreclosure is the stuff of nightmares. Desperate homeowners, sick over trying to figure out how they got from being able to afford monthly mortgage payments to just barely hanging on lose countless hours of sleep imagining what life will be like if they lose their homes. If you are in such a position, step back and breathe. There are legitimate options for avoiding foreclosure.
Far too many delinquent homeowners lose their homes because they wait until it’s too late to do something about the problem. Fear prevents them from talking to their lenders. They do not attempt to find other ways to make ends meet because they have convinced themselves that no other options exist. So they end up losing their homes and blaming their banks in the process.
The key to avoiding foreclosure is to immediately take action as soon as you know you’re going to miss your first payment. Do not just let the payment go by and expect to catch up the next month. You will only initiate the snowball effect.
1. Ask for Reinstatement
If you have a mortgage with built-in insurance, such as an FHA mortgage, you can contact your bank and ask for reinstatement. Reinstatement means that they will pick up with your mortgage right where you left off – as long as you can make a lump sum payment covering the missed installments. This may be a long shot in that you are behind because you couldn’t afford previous payments.
Perhaps you can tap into a retirement fund. You might also be able to sell hard assets to come up with the money. You could take a second job, cut back elsewhere, or whatever it takes to raise the money. Regardless, your bank would rather reinstate your mortgage than have to go through the foreclosure process.
2. Request Temporary Forbearance
Lenders are not compelled by law to foreclose on delinquent borrowers. They have the flexibility to offer forbearance, which is an option you should definitely consider. Forbearance is the act of granting a borrower some time off from making payments. It is something lenders are willing to negotiate when borrowers run into unavoidable circumstances that temporarily interrupt their ability to make mortgage payments.
3. Request a Short Refinancing
In the real estate industry, a short sale occurs when a homeowner is in financial trouble and is looking for enough money to pay off their mortgage. The homeowner will generally take the minimum amount necessary to satisfy the bank just to get the debt off their back. Short refinancing can help, too. In a short refinancing scenario, the bank forgives the past due amount and refinances the remaining amount as a new loan, resulting in lower monthly payments.
4. Forget About Hard Money
You may have read online about the possibility of hard money. Forget about it. According to Salt Lake City’s Actium Partners, most hard money lenders will not touch residential properties in jeopardy of foreclosure. And even if you could find a hard money lender, you couldn’t afford one. Hard money loans are short-term loans with high interest rates. If you cannot afford monthly mortgage payments, you certainly can’t afford a hard money loan.
The most important take-away here is that you don’t let your mortgage get 3 to 5 months in arrears before you address the problem. As soon as it becomes clear you are going to miss your first mortgage payment, get on the phone with your lender. Lenders are almost always willing to work something out. Foreclosure is too expensive and time-consuming, so they want to avoid it.
