Foreclosure! A term no one wants to become too familiar with. But, if problems have escalated beyond your control and you are no longer able to meet your mortgage obligations...there are ways to deal with the situation.
First and foremost - Don't be in denial! Educate yourself and learn about your options before this forest fire burns out of control. How you choose to respond to the default will determine your financial status for years to come.
In my experience, a foreclosure is the worst possible detriment on your credit report...even worse than a bankruptcy. So, take steps right up front to preserve and protect your credit to the best of your ability.
Here are 5 ways to prevent the worst from happening:
1 - Contact your lender! Let them know about your situation and try to work out a plan for getting back on track. They don't want a foreclosure any more than you do...and many times they will work with you to re-establish your mortgage. They might offer you interest only for a short period of time...or they might re-structure your mortgage by putting your past-due payments on the back end of your loan to help bring you current...or they might waive late fees. Who knows? And it certainly doesn't hurt to try!
If you come to an agreement with your lender - be sure to get it in writing. You might also be wise to have an attorney review it before signing. And then be sure to live up to your end of the agreement.
If you see that keeping your home is not an option ... carefully consider your alternatives to foreclosure.
2 - Re-finance the loan. This may not be the answer if you're already to the default stage - but it's worth looking into. You will need to have some equity in your home in order to do this, but in some instances it could lower your payments and save your home.
3 - Sell the home or consider a short sale. Consult with a real estate professional about the current market and what it will take to sell the house quickly. Remember, it's much better to break even and walk away from the house than to have a foreclosure on your record.
If you find yourself upside down on the mortgage - consider a short sale. It's best to discuss this with a real estate professional and allow that person to negotiate with your lender. In many situations - the lender will accept a short sale...again because it saves them from going through the foreclosure process.
4 - Deed-in-lieu-of Foreclosure. This means that you relinquish your rights to the home and simply sign the deed to the home over to the lender. Discuss this remedy with your lender because both of you will have to agree on it.
A deed in lieu of foreclosure is good for the lender because they don't have to wait until foreclosure proceedings are finished to sell the house. It will save them considerable expenses and court costs as well. And it can be good for you - because you won't have the foreclosure on your record.
5 - Chapter 13 Bankruptcy. This is usually a last resort...but can be preferable over a foreclosure. Bankruptcy will stop a foreclosure - and can prevent your being sued for a deficiency judgment. And, if you re-establish credit - it may not be as harsh on your credit as a foreclosure. Most attorneys offer a free consultation if you are considering bankruptcy...so why not take advantage of this offer. Your financial future is on the line!
