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Real Estate

posted on 4 Aug 2007

Ways to Prevent Foreclosures

By Doc Erikk Cruz
Broker Associate and Mortgage Broker

With the current rise with foreclosures in this current market most especially in Florida, I have researched and would share with you some of the pointers that will give you awareness on how we could prevent foreclosures.

If you fall behind in your monthly house payments, the seller or lender may try to take the house back. This is generally called foreclosure. If a house is foreclosed, you may lose not only your house, but also all of the money you've invested. A foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future. Avoid this if at all possible.

Ways That You Can Prevent Foreclosure
  • Early intervention is the key! If you’re having trouble making your monthly mortgage payments, contact your lender immediately. Don't wait!
  • Don't ignore letters from your lender.
  • Clearly explain your situation. Write down who you spoke to, the date, and what was said.
  • Be prepared to provide your lender with your current financial information, such as your monthly income and expenses.
  • You can stop the foreclosure by making up any delinquent payments plus any costs related to the foreclosure.
  • Remember to use registered or certified mail in all your correspondence on legal matters.
What Are Your Alternatives?

Special Forbearance. Your lender may be able to arrange a repayment plan that would be based upon your current financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you've recently experienced an involuntary reduction in income or an increase in living expenses.

Mortgage Modification. You may be able to refinance the debt and extend the term of your mortgage loan. This will help you catch up by possibly reducing the monthly payments to a more affordable level. You may qualify if you've recovered from a financial problem but your net income is less than it was before the default.

Partial Claim. Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current, if you qualify.

Pre-Foreclosure Sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. If you're unable to afford the house long-term, you may sell the house yourself before the foreclosure sale and save some of your equity.

Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but may help your chances of getting another mortgage loan in the future.
How Do You Know If You Qualify For Any Of These Alternatives?
Contact your local housing counseling agency for help in determining which, if any, of these options may meet your needs. You should also discuss the situation with your lender.

TIP: Lenders don't have to accept all proposals and are not obligated to do so. So don’t wait till the last minute to contact your lender.

If the lender refuses to take partial payments, you should put this money aside to help negotiate with the lender later.

The foreclosure process will continue despite the possibility of a workout agreement. Therefore, you should not wait to hear back from the lender, you should contact the lender early and try and come up with a solution as soon as possible.

Should You Be Aware Of Anything Else?

Beware of scams! Solutions that sound too simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:

Equity skimming. This type of scam involves a “buyer” approaching you and offering to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, doesn't make any mortgage payments, and allows the lender to foreclose. Remember that signing over your deed to someone else doesn't necessarily relieve you of your obligation on your loan.
Statue of Liberty

Phony Counseling Agencies. Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services, call a HUD-approved housing counseling agency. Do this BEFORE you pay anyone or sign anything.

Precautions You Can Take

Here are several precautions that should help you avoid being “taken” by a scam artist:
  • Don't sign any papers you don't fully understand.
  • Make sure you get all the "promises" in writing.
  • Signing over the deed to someone else doesn’t necessarily relieve you of your loan obligation. If your name is still included on the documents, you’re still liable for repaying the loan.
  • Check with your lawyer or your mortgage company before entering into any deal involving your home.
  • Check to see if there are any complaints against the prospective buyer if you’re selling your house. You can contact the Real Estate Commission for this type of information.
Points You Should Remember
  • Don't damage your credit rating by losing your home.
  • If you get behind on your payments, call or write your mortgage lender immediately.
  • Stay in your home to make sure you qualify for assistance.
  • Arrange an appointment with a housing counselor to explore your options.
  • Cooperate with the counselor or lender trying to help you.
  • Explore every alternative to losing your home.
  • Beware of scams.
  • Don't sign anything you don't understand.
  • Remember that signing over the deed to someone else doesn’t necessarily relieve you of your loan obligation.
  • Act now! Delaying can't help. If you do nothing, you will lose your home, the money that you've put in your home, and your good credit rating.
Some creative suggestions to be taken to further prevent or lessen the chances of having foreclosures:
  1. Rent it out instead of selling… If you have more bedrooms that you are not using you could maximize the space by getting boarders to support portion of your monthly amortization.

  2.  Refinance, stretching the years of payment or look temporary remedy of getting a loan on the program of option arm like fixed 3-5 years until the market will start to bounce back at the same time lowering the monthly amortization.

  3. Some people who owns the house, rents the whole property to a renter and move to a small less maintenance rental room or property

  4. Also if you are really motivated to sell the property, you could find a renter that would agree on a month to month contract and at same time posting the property for sale or listing it with a realtor for sale.

  5. You could sell a portion of the ownership to a friend/ relative/ to raise some funds to support or split the mortgage payment. This could be done by setting up a quit claim agreement or other legal ways to sell a portion of your ownership. Consult your lender if this will work with your mortgage clause.

  6. Lease to Own is a unique way of attracting buyers to rent the property. In a nutshell, it simply means that the renter are paying a monthly rental for the owner but portion of that rent will be credited to either the down payment or a consideration as part of the payment when the renter is ready to buy the property.

  7. You could borrow a loan to a friend who has a good equity buildup from their property and just pay the corresponding interest from their bank. The main thing about this action is you are just buying time until the market comes back or until you are financially stable again.

  8. Find some other sources of income other than your usual source of pay. There are several home businesses that can give you residual income and try make use of the internet business to generate income too. Or take a second job.

  9. You can find 2 or more people that you can get together and assist them on how to work it out as a group owners or joint buyers.

  10. You could find a buyer who is willing to just assume the remaining part of the loan of the property. Just make a special arrangement with the buyer and consult the lender regarding this kind of arrangement.


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