AVOIDING FORECLOSURE
www.freddiemac.com
The last thing any homeowner wants to think about is losing the family home. No one expects to lose their house to foreclosure, but by understanding the foreclosure process and what may lead up to it, you can be in a better position to recognize and address potential problems that may impact your ability to make every mortgage payment on time.
What is foreclosure?
In the contract you signed when your mortgage lender loaned you money to buy your house, you agreed that if you can’t repay the loan, the lender can foreclose to take ownership of the house.
If you do not pay your monthly mortgage payment, you are technically in default on your mortgage. State laws vary, but generally, a loan that is as little as 90 days delinquent can be considered in foreclosure.
Your lender may send you a notice indicating that they are starting foreclosure proceedings, but don't wait; take steps to prevent a foreclosure as soon as you realize you are having trouble paying the mortgage!
- Learn to recognize the warning signs of foreclosure.
- Know what early steps you can take to avoid foreclosure.
- If you are in the midst of a foreclosure, know the dos and don'ts.
- Know where to get help in dealing with issues that could lead to foreclosure.
Have a Plan B.
Don't wait until you're in a financial predicament before assessing your options. The time to develop a backup plan is not when things have gotten so bad that you are facing foreclosure, but when things are going well and you can prepare for the unexpected "what if's" that happen in life.
The Warning Signs:
What are the warning signs of foreclosure? Unexpected life changes are often a contributing factor to foreclosure – especially those that impact your finances, such as:
- Loss of employment or reduction of hours
- Major illness or injury
- Divorce or separation
- Death of a spouse
What makes it so difficult to think about foreclosure during times of crisis is that you are so focused on the problem at hand and not likely to have the time or energy to think about how it could impact other aspects of your life. That is why a plan that was developed before any problem starts is the best protection.
If you have a "Plan B" in place, you won't have to organize your finances while you are stressed about finding a job or dealing with a major illness. The plan will already be done – you will need to just follow it.
Financial Warning Signs:
There may not be a major life change to signal potential trouble – you simply may be having a difficult time properly managing your finances. Don't be fooled into thinking your credit card problems won't affect your mortgage. It is important to realize that financial difficulties in one area can, and often do, spill over to other areas. These difficulties are all warning signs of financial problems that can lead to foreclosure on your home if you do not act quickly. They include:
- Maxing out credit cards
- Using credit to pay for day-to-day expenses, such as groceries, utilities, etc.
- Being unable to pay your bills on time
- Paying only the minimum amount on credit cards
- Applying for new credit cards after maxing out on existing ones
- Having to choose which bills to pay
Talk to a housing counselor immediately if you see these signs (see sidebar for help finding a legitimate counselor). You may be able to get your finances back on track before foreclosure becomes a reality.
Early Steps to Prevent Foreclosure
You already know a Plan B is important, but what should it include? The first steps to take in creating your plan are to:
- Save money
Put away some money each month to have an emergency fund in case something unexpected happens, such as losing your job. You should have several months of housing costs saved to protect you from unexpected financial problems. - Reduce expenses
Think about where you can save money; for instance, temporarily canceling cable or your gym membership. By paring down to the bare necessities, you may be able to save a significant amount of money. And even if it doesn’t seem like enough of a savings to make a big difference, remember – every little bit helps.
Use our budget worksheet (call us to get a free budget worksheet 800-910-9083 or email: mailto:info@turningpointmortgage.com) to help think about which changes you can make if you find yourself facing financial difficulties.
If you've put your Plan B into action and still find yourself having trouble paying the mortgage, you should:
- Call your lender
This is the single most important thing you can do. Lenders want borrowers, not properties – they would prefer to see you keep your home. Most will work with you while you get back on your feet. - Be honest with your lender
Different situations require different solutions. It will matter to your lender to know if your financial problems are temporary, for example, due to an injury that puts you out of work for a few months, or are more long term, such as a cut in pay or a layoff. - Know what you owe
Have a clear picture of what your debts are and make your mortgage the priority if you have to make choices. Debt collectors can be very aggressive, but if you can't pay all your debts, make sure your home is protected from foreclosure by paying your mortgage. - Talk to a housing counselor
A non-profit housing counseling agency may be able to help you restructure your bills so that you have an easier time paying them. Additionally, they can help you create a budget that suits your specific needs. - Contact a housing non-profit
A housing non-profit can give you valuable advice. The HOPE National helpline, 888-995-HOPE, is dedicated to helping homeowners facing foreclosure 24 hours every day. Spanish – speaking counselors are available.
Where to Get Help
Your biggest ally if you encounter difficulty paying your mortgage on time is often your lender. Don't wait – call them as soon as you know you are having problems. The HOPE National Helpline is open 24 hours and provides free assistance. Contact them at 888-995-HOPE.
Additional housing agencies that may be able to help you with confidential budget and debt counseling include:
Information provided by www.freddiemac.com
The material contained in this newsletter has been prepared by an independent third-party provider. The material provided is for informational and educational purposes only and should not be construed as investment, financial, real estate and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
Used by permission.
