7 Steps to Avoid Foreclosure
If you have missed fewer than three mortgage payments or are anticipating that you might have to miss them in a month or so because of life circumstances, put your smarts in action and implement this simple plan to avoid foreclosure. Don’t confuse simple with easy; avoiding foreclosure can take time, patience, money and effort, but if you save your home, it could be worth it!
Step 1: Cultivate Clarity
Before you make the massive commitment of time, money and energy it might take to avoid foreclosure, make sure that saving your home is going to be worth it. If, for instance, you have extra mortgages and home equity lines of credit (HELOCs) on your home, it may not make sense for you to restructure that debt so that you still have a $500,000 mortgage on a home that is worth $300,000.
Step 2: Conquer the Fear
For many people, the prospect of being unable to make their mortgage payment paralyzes them with fear and anxiety. They stop opening the mail, start avoiding phone calls and procrastinate on paying the bills. The fastest way to feel relief if you are falling behind on your mortgage is to do something about it. Whether you gather your bill statements, apply for a new job or call your lender to explain your situation, moving into action will prevent you from waking up to find a Notice of Trustee Sale posted on your front door. By the time that happens, there is not much you can do to save your home.
Step 3: Increase Your Cash Flow
This may seem like a no-brainer, but it is sound advice. Consider doing some freelance work, getting a second job or taking in a roommate. Evaluate what you don’t use and don’t need; you wouldn’t believe the numbers of people who have spare automobiles, computers and other valuables they can sell. Slash unnecessary expenses; cable TV, massages and dining out must go. Cutting expenses will show your lender you are willing to make sacrifices, boosting the chances they will work out a compromise with you.
Step 4: Call Your Lender to Try to Work It Out
If you make a thorough, persuasive and specific request for a temporary or permanent loan modification, your lender might agree to help you.
Step 5: Try to Refinance
If your mortgage balance is near or less than what your home is worth on today’s market, you might be able to refinance your home, get a lower interest rate, lower your monthly payment, skip a payment or two, or even receive some cash at the time you close the refinance transaction. Work with a reputable mortgage broker and try contacting a mortgage representative at your current lender; some lenders will do more to get you into a new loan with them than they will to modify your current loan.
Some nonprofit, alternative and governmental lenders now offer to refinance mortgages of homeowners in distress. For example, the Neighborhood Assistance Corporation of America offers a Home Save refinance mortgage with interest rates far below market averages. The Federal Housing Administration (FHA) has also set aside billions for the purpose of refinancing the loans of borrowers who have fallen behind on their mortgages.
Step 6: Put Your Home on the Market Immediately
If it looks like you will not be able to work out a solution with your lender or refinance your home, you should put it up for sale -- immediately. Find a real estate agent who has successfully represented other homeowners you know and who has a track record of getting homes sold quickly. The faster you get your home sold, the less damage will be done to your credit and your psyche!
Step 7: Bonus Step for Seniors
If you are over 62, you might have additional options. Consider reverse mortgages and advances on your future appreciation, which unlock the equity in your home. These programs all have serious implications, so consult your children, your financial adviser, your CPA and your estate planner before you agree to anything.
Nelson is founder and chief visionary of rethinkrealestate.com and author of "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions."