Foreclosure - The 7 Year Curse - How You Can Avoid It
With the proliferation of ARMs, interest only, and other creative mortgage products, there are more people that ever in danger of foreclosure. Perhaps you're one of them. If you are one of those facing potential foreclosure, don't throw in the towel just yet. There are steps you can take to avoid foreclosure. Avoiding foreclosure is essential to maintaining any semblance of good credit.
Foreclosure will follow you around on your credit report for 7 years. You'll have trouble financing another home during that time, and interest rates on other loans, if you can get them will be much higher than they otherwise would have. This situation will be exacerbated as lenders get squeamish because of the problems they're now facing with the sub-prime mortgage market. Currently foreclosures are running at over 13%, an all time high. So if you are facing foreclosure, you're definitely not alone.
There are some steps you can take to avoid foreclosure and the problems that come with it. If you have equity in your home, are still gainfully employed and think you may be facing foreclosure because your ARM adjusted or you're looking at a balloon payment that's coming due, you may be able to refinance, even if you have bad credit. That would be your first avenue of defense, even if you've already missed a payment. Do whatever you have to do to make up that payment. Have a yard sale, get another job, and clean out your closets on eBay, whatever it takes to get enough cash together to make up your missed payment. If you can refinance into a 30 year fixed mortgage, you won't be facing the reality of your mortgage payments increasing precipitously.
If it's too late to refinance your mortgage, you'll have to resort to the next strategy. You'll need to contact your lender and make some alternative payment arrangements. This may take some persistence, but keep trying. Most lenders would rather have you keep your loan, your home, and keep making them payments every month, so they'll work with you to resolve the situation before foreclosing. The key is to be proactive. Don't wait until the sheriff shown up on your doorstep with an eviction notice. So, you've got to call your mortgage holder and work things out in a mutually beneficial arrangement.
When you call, you need to reach the loss mitigation department. Don't take no for an answer on this one. You may get the run around, but that's pretty typical of any large organization. Once you reach loss mitigation, you have some options.
Special Forbearance. This option allows you to temporarily reduce your mortgage payments or get a temporary waiver of payment. You may be able to get a special forbearance if you can show extenuating circumstances, such as a temporary medical condition that caused you to miss work for a time, or if you've gotten laid off, but have been hired by another firm and have yet to begin your new job. Remember, they want you to keep paying them. It costs them money to foreclose on your property, so give them a chance to help you wok things out. Mortgage Modification Just as it sounds, a mortgage modification is a restructuring of your mortgage to better fit your current financial situation. If you have recovered form your financial problems and are able to make payments again, albeit at a reduced amount, you may be able to use this option to avoid foreclosure.
Partial Claim With the partial claim, the FHA bails you out with the amount your mortgage is in arrears. Once it's current, you can begin making payments again. You will have a lien placed on your property by HUD, who you'll have a promissory not to for the amount of the bailout. When you sell your home, or pay off the first mortgage, you'll have to pay off the note. That seems like a very small price to pay to avoid foreclosure on your home. One caveat with the partial claim, you must be able to make the full payments again, and you must be at least 4, but less than 12 months behind on your mortgage. The chances of you falling all the way to12 months behind and still keeping your home are slim, however.
Deed In Lieu of Foreclosure With this one, you basically trade away your home to stop foreclosure. If you've been unable to sell, it may be your only option. Few people avail themselves of this option, because people tend to be very stubborn when trying to keep their home. With the DILF, you will lose your home, and take a credit hit, but it won't destroy your credit for 7 years as will happen with a foreclosure.
Remember you can avoid a foreclosure but you must be proactive and step up to the plate. Make sure you save any documentation that supports your position. That will help show you are serious in your negotiations with your lender.
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For more valuable information on debt, your credit, foreclosure, helping your credit score, choosing a mortgage that's right for you, and avoiding mortgage problems, see the home mortgage guide.
