Monday, July 7, 2008

Foreclosure Prevention

Foreclosure is a process through which a lender can recover the loan by taking ownership of the property used to secure the loan if the borrower defaults in making payments.

A property goes into pre-foreclosure when the lender files a public notice of default after a borrower defaults on the loan payment. During pre-foreclosure, the borrower has the right of redemption within a grace period specified by state law. The borrower may sell his property during the pre-foreclosure period to pay off the loan. The lender may also agree to sell the house at a price lower than the current loan amount and release the borrower of the obligation to pay the remainder through a process called a Short Sale. At the end of the pre-foreclosure stage, if the owner has not been able to reinstate the loan or sell the house, it is sold at a public auction. The auction usually takes place at the county court house, and the property will be sold to the highest bidder.

Take steps to take control your finances as I discussed in Independence Day and try to cut down unnecessary expenses as much as you can to become a frugal spender.
Beware of scams. You should NOT have to pay for counseling when HUD approved free services are available. Look for the links below.
If you are behind in payments and have received a letter from the lender
  • Contact the lender immediately to try and work out a payment plan to catch up with the payments you have been unable to make. It is very important that you DO NOT ignore these notices. The problem will not go away if you ignore the notices, and it will only make matters worse. If you communicate with the lender, at least you have a chance of negotiating better terms with your loan, or try to work out a payment plan while you look for a job or put your house up for sale. Lenders, faced with many foreclosures, are willing to work out loan payment arrangements, but you have to take the first step by contacting your lender.
  • If you can come up with the costs required to cure foreclosure, you have the right of redemption within a specified time period.
  • If you cannot sell at a break even price, you may still be better off selling the house at a loss than continue to loose more money. You maybe able to negotiate a Short Sale, a process by which the lender agrees to sell your property at a loss, and release you of the additional loan obligations.
If you are still making payments and is facing a rate reset.
  • Contact your lender and try to work out a payment plan or see if you can you refinance under better terms. Lenders are not in the business of buying and selling property and they don't want you to loose your house, because its costly for them as well. It takes time, money and effort for the lender to foreclose, renovate and put a house back on the market. So, you do have some bargaining power.
  • Shop around for loans at better terms with other lenders.
  • If you are unable to secure a new loan at better terms, consider selling your property.
In any case, do your best to educate yourself about the options that are available to you. I have done the research and listed my sources below.

Homeownership Preservation Foundation offers free counseling and claims to have provided advice and education to more than 300,000 homeowners since 2002. Click here for other HUD Approved Housing Counseling Agencies

Department of Housing and Urban Development is a good source of information about foreclosure prevention.
From Federal Reserve
From FreddieMac
From IRS
If you want the legalities, find the foreclosure law for your state
Foreclosure Information for Veterans

1 comment:

National Help Center Law Group said...

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