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Avoiding Foreclosure

Are you behind in your mortgage payments, or concerned that you soon might be?

Have you received a pre-foreclosure letter from your lender?

First of all, don't be ashamed. Millions of homeowners are in your situation – many times through no fault of their own. A job loss, a serious illness or other circumstances can put you in danger of foreclosure.

The economic downturn has led to many homeowners being "under water" in their loans, meaning they owe more than their home is worth, making it impossible to refinance.

If you've become one of those millions, don't panic. Foreclosure, and its accompanying effect on your credit, is not inevitable. There are many options out there, and your circumstances may make one of those options feasible and desirable for you.

To keep your options alive, you need to communicate with your lender. Many homeowners have lost their homes to foreclosure without ever contacting their lender.

Many lenders would rather not foreclose. They take a large financial hit on a foreclosure. So in many cases, they'll consider viable alternatives. Some of these alternatives may keep you in your home.

Loan Modification

While only certain homeowners will be able to take advantage of this alternative, it may be your best option because it keeps you in your home and typically results in the least damage to your credit.

Your lender may be willing to modify the terms of the loan, whether it's reducing the principal, lowering the interest rate or other creative strategies to make the loan affordable for you. As part of the stimulus package, the U.S. government has programs to provide incentives for banks that use this strategy as an alternative to foreclosure (e.g. HAMP-home affordable modification program).

Short Sales

A short sale is NOT the same as a foreclosure. There are major differences between the two. A foreclosure should be avoided at all costs, as it does serious, long-term damage to a person’s credit.

This is the fastest-growing foreclosure alternative. Many lenders will allow a Short Sale, when the home sells for less than the amount of the loan. This is attractive for lenders because they lose less money than in a foreclosure. Also, Short Sales generally take less time than foreclosures, so the banks don't have to carry the properties on their books as liabilities.

And it's attractive for homeowners because the impact on their credit is far less than in a foreclosure. You may be able to buy another home in as little as two to three years after a Short Sale, compared with a typical seven-year wait after a foreclosure.

Short Sales are complex and paperwork-intensive, and there are many, many details involved. Each mortgage company is different and has their own rules, which of course adds complication and challenges one’s understanding of the process. When a seller has a second or third mortgage on their house, the level of complexity increases.

If you’re considering this option, it’s critical to work with a trained real estate agent who knows all the steps required to successfully complete a short sale.

Qualifying for a short sale: Sellers experiencing almost any type of financial distress (i.e. payment increase on mortgage, loss of job, business fails, reduction of income, divorce, death of spouse, illness, and too many bills) may qualify for a short sale of their home, even if they are current on their mortgage payments.

If you're considering this option, it's critical to work with a trained real estate agent who knows all the steps required to successfully complete a Short Sale

There are no guarantees a Short Sale will be approved or ever close, but when the process has been professionally handled by a Realtor familiar with short sale transactions, preferably a CDPE (Certified Distressed Property Expert), the odds of success are greatly enhanced.

Remax leads the real estate industry in agents who’ve completed the Certified Distressed Property Expert (CDPE) course. I understand the intricacies of these transactions and will be able to advise you every step of the way.

Keep in mind that no matter which option you choose, there may be tax and other financial consequences. You should consult with a tax advisor or legal expert.

To learn more about short sales, loan modification and other options to avoid foreclosure, call Jeff at 631-382-8840.

Foreclosure (Cash for Keys)

One of the biggest problems in foreclosures is that homeowners sometimes physically damage the property, or even sell some of the fixtures, before leaving. Needless to say, this is not a good idea. It may expose the homeowners to financial and legal liability. It also makes the properties much more difficult to sell.

To prevent this, some lenders offer a program called "Cash for Keys." The homeowners receive a check for vacating the property within a certain time period and leaving it in good condition. If you have no alternative other than foreclosure, you should ask the bank about this option.

10 Tips From HUD (U.S. Dept. of Housing and Urban Development) for avoiding foreclosure:

  1. Don't ignore the problem.
  2. Contact your lender as soon as you realize you have a problem.
  3. Open and respond to all mail from your lender.
  4. Know your mortgage rights.
  5. Understand foreclosure prevention options.
  6. Contact a HUD-approved housing counselor (e.g. Long Island Housing Partnership)
  7. Prioritize your spending.
  8. Use your assets.
  9. Avoid foreclosure prevention companies.
  10. Don't lose your house to foreclosure recovery scams.

General Tips to Prevent Foreclosure

Be proactive. Contact your loan servicer immediately.

  1. You can find the contact information on your monthly mortgage bill or coupon book.
  2. Lenders can work out plans to allow you to stay in your home.
  3. Ask about foreclosure alternatives.
  4. Be prepared to disclose detailed financial information.
  5. Provide requested information in timely manner.
  6. Be ready to change your spending habits and create a budget.
  7. Open mail and respond to calls from your loan servicer promptly. Failure to respond in a timely manner can result in more foreclosure actions and additional cost.
  • Talk to a housing counselor. HUD approves trained counselors to work with not-for-profits focused on preventing foreclosure. Get in touch with your local government agencies. Your city, state or county may offer programs for people having trouble making their mortgage payments.
  • Notify your other creditors. You may be able to lower interest rates on your credit cards or consolidate some of your other loans. You can put the savings toward your mortgage.
  • Create a budget. You may find areas you can save and put the money toward keeping your home.
  • Re-read your mortgage agreement. Understanding the document is critical.
  • Talk to a lawyer if you think you may have been a victim of predatory lending. Your local university may host a legal clinic. There also may be fair-lending counseling agencies in your area.
  • Beware of anyone who says you don't need a real estate professional or title company when selling your home.

*Do not sign over the deed to your property to any organization or person if you are not working directly with your lender to get your debt forgiven.


 


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