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How to Prevent Foreclosure

When the burden of mounting mortgage bills becomes much too much to handle, continuously missed payments will result in the dreaded and completely scary course of action known as foreclosure. Legally, a lender has the right to repossess your property if you are unable to make required payments, and when this process begins to take place, you must move out of your home within a certain amount of time. Sometimes, foreclosure is preventable and in order to stand a chance with the lenders, early action is a must.

How to Prevent Foreclosure

What is Foreclosure?

Foreclosure is the legal proceedings that take place when a bank or other secured creditor attempts to sell or repossess your immovable property (house) because of a failure to abide by the agreement drawn up between a lender and borrower. This agreement is called a “mortgage” or “deed of trust” and when it becomes violated (default in payment of a promissory note), a lien against the property is filed [1]. Once the process is complete, the lender has foreclosured on the mortgage or lien.

Often, a failure to comply with a mortgage agreement follows circumstances that have placed an individual or family in dire straits. Job loss, extreme medical expenses, and other events that seriously alter ones life, can cause one to fall behind in their loan payments. Over time, the ownership of the home is threatened, which comes in the form of foreclosure.

After a mortgage has entered a state of default, the mortgage holder may facilitate foreclosure at any time. In the United States, homeowners face a handful of different foreclosure methods. While there are two main approaches, additional options are associated with a state-specific course of action. The most significant type of foreclosure is called “foreclosure by judicial sale,” which may occur in every state.

Often, the sale of a mortgaged property takes place under the direction of a court, where the profit first goes to resolve the mortgage, followed by additional lien holder, and then when applicable, to the mortgagor. Since this is a legal act, all parties require foreclosure notification. Both sides will then have a chance to plead and sometimes exercise a right to short trial.

The second type of foreclosure is called “foreclosure by power of sale,” which deals with the sale of the property by the mortgage holder. This approach does not involve the courts. In many states, this is seen as the fastest way to complete the foreclosure process. When the house is sold, the proceeds are first given to the mortgage holder and lien holders, followed by the mortgagor.

Additional methods of foreclosure are seen scattered about the United States. For instance, “strict foreclosure” is a common practice in New Hampshire and Vermont, where the mortgagor is given a certain amount of time to pay their mortgage debt [2]. If they fail to comply, the mortgage holder instantly gains ownership of the house with no duty to sell the property.

The Negative Effects of Foreclosure

The foreclosure process is a highly stressful occurrence that in many cases ends with the most negative outcome of all – the loss of residence. Displacement, additional financial stress, poor credit ratings, depression, and anger, are just some of the wide-ranging effects that take place with a foreclosure.

Unfortunately, as homeowners scramble to prevent losing their house, numerous outside pressures may arise. There are plenty of people and agencies that prey upon desperation in order to turn a profit on the misfortune of others, including:

a) Equity Skimmers:

A variety of “foreclosure assistance” scams are becoming an increasingly popular strategy for individuals looking to make a quick buck and capitalize on the situation. One such technique is called “equity skimming,” which involves a “buyer” who contacts a desperate homeowner and offers to rescue them from their financial troubles by promising to pay off their mortgage, where a sum of money is assured once the property is sold.

Some “buyers” urge individuals to quickly vacate the premises and sign the property deed over. The “buyer” may collect rent for a bit of time, but often fails to make any mortgage payments, and allows lenders to foreclose on the property anyways. It is important to remember that signing over your deed to someone else does not always save you from your loan obligation.

b) Phony Counseling Services:

You see them during commercial breaks, plastered on billboards, and decorating the Internet – foreclosure prevention services are heavily marketed – especially with the increase in foreclosed properties over the years.

There are many groups that refer to themselves as “counseling agencies” that charge a fee to assist you with your mortgage woes. They claim to possess negotiating skills in reaching a new payment plan with your lender or offer pre-foreclosure sale services. To date, there are numerous illegitimate pitfalls; therefore, it is important to do a background check before paying or signing anything [3]. Often, these services are simply doing something you can very well successfully complete on your own.

How to Prevent Foreclosure

One of the worst feelings a family or individual must go through in life is to lose their home. Despite the inability to make payments on time, there are a few prevention methods that can stop the foreclosure process. The key to preventing foreclosure is to act quickly because every day counts in regards to the number of alternatives you may turn to. A few foreclosure preventive measures include:

a) Respond to All Letters:

A grave mistake that homeowners make in regards to their mortgage is to ignore the letters they receive from their lender. As soon as it becomes apparent that you are going to experience problems making your payments, it is important to call or write the Loss Mitigation Department without delay. Usually, they will ask you about your monthly income and expenses, which is then used to come to some sort of agreement.

b) Don’t Flee:

Some people leave the premises of their home, but the best course of action is to stay in your house because you may not qualify for aid if you abandon your property [3].

c) Seek Housing Counseling:

There is an assortment of both paid and free counseling services that may help you figure out the options available to you in order to prevent foreclosure. A wealth of government agencies, private organizations, and community groups are more than willing to help.

d) Seek Special Forbearance:

Some lenders are willing to work out a repayment plan that accommodates your current financial situation and might even grant a temporary reduction or suspension of your payments.

e) Reinstatement:

When you have gotten behind in mortgage payments, you may receive a reinstatement, where you promise to pay out a lump sum in order to bring payments current by a specific date that both you and your lender agree upon. Sometimes, forbearance is combined with this type of foreclosure prevention method [4].

f) Seek Mortgage Modification:

Some individuals are able to refinance and/or extend the term of their mortgage loan, which helps some catch up in payments because their monthly responsibility is brought down to a more affordable level. Those who usually receive this type of allowance have recently recovered from a financial issue and can afford the new payment amount.

g) Partial Claim:

If you are trying to prevent the foreclosure on a HUD home, you may work with your lender to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current. To qualify for this option, your loan should be at least 4 months delinquent but not exceeding the 12-month delinquency mark; and you must be able to handle fulfilling regular mortgage payments.

h) Pre-Foreclosure Sale:

To prevent foreclosure, you may sell your property before the official paperwork is filed. Usually, the house is sold for the amount less than the amount owned on the mortgage loan.

) Repayment Plan:

When an account has become past due, a lender may agree to let you catch up by adding a portion of the past due to a certain number of monthly payments until the account becomes current.


[1] http://en.wikipedia.org/wiki/Foreclosure
[2] http://en.wikipedia.org/wiki/Foreclosure#Types_of_Foreclosure
[3] http://en.wikipedia.org/wiki/Foreclosure#Types_of_Foreclosure/
[4] http://www.americanfamilyfunds.com/education/ch1_9_5.php

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