So far, we’ve given a ton of background information on foreclosure. Here are ten actionable and tactical steps that you can take to stop foreclosure today! We’ve broken these methods up into 2 categories: methods to keep your property, and methods to discharge your property!
1. Seek Professional Help
When you’re battling foreclosure, step number one is to seek professional counsel. Contact your lender directly to see what they’re able to offer you. Typically, lenders have a number of solutions such as repayment plans, pauses, freezes, even forgiveness.
You can also contact a foreclosure avoidance counselor from the US Department of Housing and Urban Development, or HUD. As part of the Homeowner Affordability and Stability Plan (HASP) you may discover refinancing or modification opportunities that you weren’t previously aware of. The best part: these counseling services are F-R-E-E!
2. Forbearance
The second way that you can fight a foreclosure is through forbearance. During a forbearance, your lender may allow you to reduce or pause mortgage payments for a specific amount of time.
What’s important to know about forbearance is that it’s not the same as forgiveness and you’re still responsible for your debt. Forbearance can last from 3 to 18 months depending on the lender and circumstance. You can use the time to restructure your finances and get back on track for the long term.
3. Loan Modification
The third way to fight a foreclosure is through loan modification. With loan modification, you can negotiate with your lender to adjust the terms of your current mortgage.
Some of the things you can adjust are the interest rate, variable or fixed structure, duration, and even principal. If you’re underwater on your mortgage, a modification may help make your monthly payments more manageable. Your lender may also be able to combine modification with forbearance to buy you extra time.
4. Refinancing
The fourth strategy to stop foreclosure is mortgage refinancing. People often use refinancing and modification interchangeably, but unlike modification, refinancing means replacing an existing mortgage with an entirely new mortgage.
Refinancing is best for homeowners who are NOT YET facing foreclosure. If owners have equity in their property they can use it to take cash or find more favorable terms.
5. File An Insurance Claim
The fifth foreclosure buster is the advance claim or partial claim. This lesser-known strategy can be a game changer. When you buy a home with less than 20% down, lenders require you to have private mortgage insurance.
PMI protects lenders from mortgage payment defaults. In the event of a foreclosure, you may be able to request an advance from your PMI company to bring your mortgage current. Claims are actualized as loans payable at the end of the first mortgage.
6. Bankruptcy
The sixth option against foreclosure is bankruptcy. There are two types of bankruptcy, chapter 7 and chapter 13. Chapter 7 bankruptcy discharges debts by seizing your assets and taking your home. Chapter 13 doesn’t require you to surrender assets, but you’ve got to meet the financial requirements and enter a court-ordered payment plan.
Important info around bankruptcy is that it stays on your credit report for 10 years, and you may need to wait up to four years after the debt is discharged to buy another home. On top of that you’ll have to hire a lawyer to file on your behalf. Bankruptcy is our least favorite foreclosure resolution option.
7. Foreclosure Defense
The seventh way to stop foreclosure is to come up with a foreclosure defense strategy. This strategy’s success is contingent on you making your lender prove that they have the right to foreclose. You can challenge a lender’s right to foreclose by asking them to produce the original signed promissory note stating the terms and obligations of the mortgage.
If a lender fails to produce a note, foreclosure can be delayed or dismissed. The other way to challenge a foreclosure is to make your lender establish a perfect chain of title. Any lapse in the chain of title causes a “defect” making it invalid.
8. Let Someone Else Pay
The eighth tactic against foreclosure is called assumption. This is the first strategy that involves getting rid of your home. With assumption or “sub to”, a new owner takes over an existing mortgage and assumes the financial responsibility and obligation. During foreclosure, the assuming buyer will have to reinstate the mortgage by paying off the default amount or reaching a payoff agreement through modification. Assumption can prevent you from losing the home if the new owner is willing to allow you to lease the home back to you.
What’s important to know about assumption is that not all mortgages allow it. If you’re considering assumption, make sure you talk to your lender about a “due-on-sale” clause. This clause stipulates that a full loan balance must be repaid upon transfer of the property to a new owner.
9. Sell
The ninth tactic to stop foreclosure is to sell your home. There are a number of ways to sell a home during a foreclosure. In the early stages of foreclosure, a straight sale is a good option, but it takes 4-6 months.
If you don’t have any equity in the property, you may be able to negotiate a short sale with your lender. In a short sale, the lender agrees to allow the sale of a home for less than the current mortgage amount. A short sale will stop the foreclosure, but owners don’t profit from the sale.
If you have equity but no time to resolve your foreclosure, you can sell your home for cash. Cash offers are around half of what you would get on the open market. Alternatively, you’ll get a lump sum in 30 days.
10. Surrender the Home
The tenth option to end a foreclosure is called a Deed in Lieu. Utilizing a Deed in Lieu means to voluntarily transfer ownership of a property to a lender in exchange for loan discharge. Typically the Deed in Lieu comes into play if you can’t refinance or modify your home loan any further.
A Deed in Lieu is best for those with negative equity who need a bailout and for those who don’t want a foreclosure to show up on their credit report and prevent them from buying a home in the future. It’s important to keep in mind once you hand over the Deed to the property, your lender will have to sell the property and isn’t obligated to accept a Deed in Lieu.
Those are ten methods of fighting a foreclosure that you can take advantage of right now. There are surely other ways to get out of foreclosure, and you can even bundle some of the options for maximum effect. For example, applying for a forbearance can be used to buy some time to do a cash sale or find an investor to assume mortgage payments.
For more information how to STOP foreclosure, head to Blue Tower FG or email us at [email protected]!
“Home Solutions You Can Trust“
