How to be proactive when facing foreclosure

Ten things you can do to assist in avoiding foreclosure.

If you are a homeowner who has fallen on hard times, thus putting you at danger of falling behind on your mortgage payments, or if you are already behind. You can be proactive in saving your home from foreclosure, a huge key to your success will be to gather all of the pertinent documents so that you can properly asses the available options and take action as soon as possible.

With a basic knowledge of the foreclosure process you can create timeline which will hold deadlines and provide a framework of how you can save your home. Once you take stock of where you are you can seek the assistance of professionals who can work with you to create a game plan for success.

• Gather your loan documents and setup your case file.

This is something that should be done, whether you are in distress or not because having access to your loan documents is an important tool in ensuring you have a clear picture of possible fees and the actions to be done by your lender. Your file should include the following records:

• Loan documents
• Copies of the mortgage, deed of trust and/or promissory note
• Your monthly billing statements
• Records of payments that have been made
• Escrow statements (if applicable)
• Property tax information
• Insurance information
• Any correspondence to/from the servicer

• Learn about your legal rights

Now that you have compiled your records, take the time to carefully read them so you can understand more about what is to happen. From the mortgage and promissory note you will be able to understand:

• If the loan has the right to reinstate if you catch-up on past due amounts.
• The monthly late charge amount
• What other fees your servicer can charge

California foreclosure law states that a lender can not start a foreclosure until you are 120 days delinquent in payments. (CA Foreclosure Process)

• Organize your financial information

Gather your financial information such as pay stubs, profit and loss statement (for the self-employed) , bank statements, federal tax return, and supporting documentation for any other income such as social security, child support, rental income or alimony.

This will assist in figuring out your total monthly income and monthly expenses, which your servicer will need to determine whether you are eligible for an alternative to foreclosure. 

• Review your budget

Now that you have gathered your monthly income and expenses you should review your spending habits and create a budget. Look for ways to reduce excess spending on things like everyday expenses (daily coffee, or dining out), and optional expenses (gym memberships, or auto debt monthly subscriptions). Now may also be a good time to negotiate the monthly payments you are making towards other debts (credit cards, student loans or auto loans). 

Finding ways you can momentarily cut back on spending can show your servicer that you are will be more able to take of your loan payments.

• Know your options

Often times borrowers have the ability to take part in permanent or temporary loss mitigation options to avoid foreclosure. Here are a few of options that are available, this is not an exhaustive list:

1. Forbearance agreement and payment options: You may be eligible for a forbearance agreement if the reason for the missed payments is temporary. In a forbearance agreement the lender will agree to reduce or suspend the payments for a limited amount of time. At the the end of the agreement period, it is expected that you will bring the loan current by taking care of the missed payments, or find ways to pay reduced payments in full through a repayment program. 
2. Loan modification: A permanent change to loan terms – which might extend terms or reduce the interest rate. The servicer often will add the past due amounts to the loan balance.
3. Foreclosure Mediations: Although not offered in all states, counties or cities, mediation can be useful to bring both parties to the table to work out a way to resolve the delinquency. This meeting occurs between the homeowner, and lender with a neutral mediator. It has been studied that homeowners who participate in mediation are 1.7 more likely to avoid foreclosure than those who do not.
4. Selling your home, negotiating a short sale deal or offering the deed in lieu of foreclosure: These permanent options will be discussed in further detail in point 10, as this option is a last resort.

• Call your servicer

Don’t wait until the last minute to seek help, when you are facing foreclosure you are active working against the clock.  If at all possible call your servicer as soon as you miss a payment. Once you have taken the time to review the terms of your loan, you are able to have an educated conversation with your servicer and see if you qualify for a foreclosure alternative.

• Contact a HUD-approved housing counselor

It is often a good idea to get in contact with a free HUD-approved local counseling agency. These counselors will be able to provide assistance and guidance in working out a way to avoid foreclosure. They also have access to different programs that could possibly be of assistance to you during this time. 

• Be referred to a for-profit foreclosure companies

Although there are a number of for-profit foreclosure companies that claim they can get a loan modification, provide debt counseling or other foreclosure relief for a fee, not all companies are equal. If you do decide to use one of these companies be sure that they are vetted and have a track record of success. If at all possible before signing a contract negotiate payment based on performance as a way to protect your interest.

• Learn about your states foreclosure laws

Foreclosure laws vary from state to state, you should learn about your states’s foreclosure laws so you are aware of the foreclosure time lines and the rights and protections you are entitled to as a homeowner. Do some legal research or talk to a local foreclosure lawyer. 

• If all else fails sell your home before the foreclosure sale

As a last resort when the other attempts to avoid foreclosure in a way that will allow you to keep your home, you might still be to avoid foreclosure by selling your home or giving it to the lender.

Selling your home to avoid a foreclosure

If you have equity in your home you can apply the proceeds form the sale to pay off your mortgage loan. Any profits that are distributed after the loan has been paid off are yours to keep. If there is not equity available in your home, then your lender(s) might allow you to complete a short sale, which occurs when the proceeds of your home are less than the loan’s balance. If the payoff requires the approval of more than one lender, then all parties involved must agree on the short sale amount. 

In both instances, when determining the price of the sale a homeowner should work with someone who is well-qualified to get the job done. When it comes to pricing it is important to consider the current condition of your home, also the urgency of your situation. 

Deed in lieu of foreclosure. 

In this situation, you will voluntarily convey a clear title to the property over to this lender rather than go through a foreclosure.

Getting Help

As a Short Sale and Foreclosure Resource I have ample a network of people who are able to assist. Feel free to reach out to me directly so that I can point you in the direction of one of the members of my ‘Dream Team of Real Estate.’  If you are facing foreclosure and have questions about what options are available to you, consider talking to a lawyer. If you cannot afford to hire a lawyer to represent you throughout the process consider scheduling a consultation with one who can help you decide what to do.