Groups » Five Ways in Which Home Foreclosure Can Be Prevented

A home foreclosure is a highly distressing event and is something that we try to avoid at all costs. If you are in financial trouble and cannot make your monthly payments, then foreclosure becomes a looming possibility.

When you use your home to avail secured mortgage, missing payments for even a couple of months can put you in danger of losing your home.

It is important that you do not lose your cool or panic during the ordeal. A Notice of Default (NOD) may make foreclosure seem inevitable, but there are many alternatives available for you to prevent losing your home.

Most lenders and banks prefer to work out a restructured payment plan to enable you to continue with the mortgage rather than foreclose your home. If you are in genuine financial distress, you can check out the options available with Government and other financial institutions like private mortgage insurance (PMI) companies.

For starters, here are a few ways in which a foreclosure can be prevented.

Try to Find Resources

Foreclosure proceedings usually begin after you miss your fourth or fifth payment. If you can pay the amount due at least partially, most banks will be willing to work out alternatives, and will try to avoid foreclosure.

Sell off expensive assets that you own. Luxury cars, artwork, jewelry, bonds, and other liquid investments can be traded for needy cash.

Retirement funds are another option, but there are serious repercussions to dipping into your IRA or 401(K) pot. You can either take a loan against the account balance or you can opt for a hardship withdrawal. Loans are not taxed and are penalty-free, but capital gains will not be calculated on the amount that you have borrowed. Hardship withdrawals are harder to get and incur stiffer penalties. Withdrawals are allowed for heavy and immediate financial needs, and sometimes you need to have a copy of foreclosure notice to get the money.

Maintain Communication with the Lender

Other than the annoying and often abusive calls of collection agents, it is important that you have lines of communication open with the bank/creditor/lending institution.

A responsive and proactive customer will calm the nerves of the lender and will also enable you to work out alternatives. Banks prefer to continue with mortgage rather than have a house that they cannot sell on their hands.

One of the alternatives that you can consider is rewriting or restructuring the loan. Sit down with your lender and work out a solution that is practical for you.

No matter how much you downsize your lifestyle and spending habits, sometimes this is just not enough. Job loss, unexpected medical expenses, or some other situation may have come up that prevents you from saving enough for payments. In such cases, if you are assured of income in the future, it will be wise to stretch the term of your loan to reduce the amount you have to shell out monthly. In addition to lowering your monthly payments, you should also be repaying the defaulted amount over time.

It is necessary that you get the restructured loan agreement in writing so that you are sure of the terms, as well as the consequences if you fail to abide them. Vett the agreement with an attorney before signing on anything.

Consider Refinancing or Take out a Loan

If you own considerable equity in your home, it is possible to get a new loan for a bigger amount than what your mortgage is worth. You can use the extra money received to clear your defaulted amount, or you can partially pay out the loan.

Refinancing your loan means that you pay off the existing loan and replace it with another loan to leverage better interest rates, a shorter term of loan, or other benefits. This could give you more flexibility and will enable you to be regular with your future payments. You must shop around and determine whether your current lender has the best terms, or whether you need to go to another lender.

Once your bank is assured that you are doing what’s necessary to improve and resolve the situation, it will be more willing to negotiate with you.

A Sale May Be the Right Solution

Selling your house is obviously last on your list, but in some cases, a sale may help you more than any other alternative. Pre-foreclosure sale will help you get good value for your house, close the mortgage, and be left with handy equity.

You should inform the lender that you want to list your property before the foreclosure begins. Ask your lender to postpone the foreclosure to give you time to make a sale. Sometimes, foreclosures are not postponed and homeowners sell under pressure. But chances are high that your lender will be cooperative to enable a pre-foreclosure sale.

But pre-foreclosure sales are not easy, because you are looking for a quick deal and do not have the luxury of time to wait for the best offer. Market your property well and list on all popular real estate portals to get maximum visibility.

Filing for Bankruptcy Should Be Your Last Option

Bankruptcy is the last resort to stall foreclosure. As soon as you file for Chapter 7 or Chapter 13 bankruptcy, the court issues a stay order on all collection activities, including the legal auction of your home. Typically, you get time to clear your debt and have the remaining debts forgiven in Chapter 7 bankruptcy, or you get a chance to save your home in Chapter 13 bankruptcy.

Depending on your eligibility, you will be able to file under either of the plans.

But filing for bankruptcy is not easy. A bankruptcy remains on your credit history for at least seven years. Buying a new house or car becomes difficult, and getting a loan will be next to impossible for a long time to come.

According to San Diego bankruptcy attorneys, you should also explore Equity Recoupment solutions while dealing with foreclosure to recover what you lost due to predatory lending and other issues.

But if none of the alternatives are plausible, filing for bankruptcy could be right for you. It will ease or remove the burden of debt completely, and will help you get a fresh start in life.

A home foreclosure notice does not close your door to opportunities to save your home. Keep communication channels with your lender open, and do consider all alternatives available to you. There will definitely be one that suits your needs, and will either give you an opportunity to wipe out all your debts or keep your home. Choose wisely, and you will do your credit history a whole lot of good.

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