Statistics show that national foreclosure filings were up 72% in the first quarter of 2006. Clearly more and more homeowners are facing the possibility of losing their house as they struggle to stay current on their payments. Being in foreclosure is a scary situation – but with a little knowledge and a willingness to deal with the problem, you can stop your foreclosure.
The first thing you need to realize is, your lender does not want to foreclose, and they do not want your house. Mortgage companies are in business to loan money, not to own real estate. However, you and the lender are legally bound by the contract you both signed when you bought your house. Your security agreement states that if you do not pay, they must foreclose. If they do not foreclose, investors won’t invest in mortgages and that is bad for everyone.
Here is an astonishing fact: According to Freddie Mac, over half of homeowners who are foreclosed on never even try to work with their lender! Thousands of people lose their home each year because they simply did not pick up the phone and try to work it out with their lender. If you are behind on your payment(s) by even 15 days, you need to contact your lender and let them know what the situation is.
Before you go any further, spend a moment to make a very important decision. Something has caused you to miss your payments – is it a temporary setback that will soon be in the past, or a permanent or semi-permanent situation? If this is just a bump in the road, then try to find a way to keep your house. But major life change such as divorce, job loss, family problems, health issues, etc. may mean your best option is to sell the house and make a fresh start. Make a logical, not emotional decision.
If you have missed a payment or two, foreclosure is just around the corner unless you work out an agreement with your lender. Before you call, take a few minutes to prepare. Write down your budget – all expenses and sources of income – as you will likely be asked about it by the representative so they can attempt to qualify you for a program. Call the customer service phone number and ask for the loss mitigation department. Here are four common agreements that can get you out of hot water and back on track.
A Reinstatement – simply means pay all your back payments in one lump sum at some point, now or in the near future. The lender the reinstates your loan and you continue to make your payments. May be combined with a forbearance agreement.
A Forbearance – allows you to make no payment or partial payment with the understanding that you will soon pay all the past due amount. You will have to have a realistic source that the funds are coming from such as a bonus, tax refund, loan proceeds, etc.
A Payment Agreement – is when you make a partial payment on the past due amount along with your normal payment for a period of months until you are caught up and current. Your lender will want to know that your budget (income less expenses) will leave room for that increased payment, so be prepared to prove it to them.
A Loan Modification – is a renegotiation of the terms of your original note to make your payment more affordable. You might be able to extend the loan and add the payments to the end, simply add the amount to the principal balance and increase the payment accordingly, or transform the loan from adjustable-rate to fixed-rate.
One final thing to remember when calling loss mitigation – the person on the other end of the phone is not your enemy. They are just doing their job, and it’s a not-too-fun job, and most of the people they talk to do not want to talk to them. Let them know you are serious about remedying your situation, but be friendly, upbeat, positive, and gracious.
There are many more radical ways of stopping a foreclosure, but the first and best option is simply good communication and a negotiating a win-win arrangement with your lender. Good luck!