Your last opportunity to prevent foreclosure

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Your last opportunity to prevent foreclosure
2 years ago
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Even if you're not yet behind on your mortgage payments, if you know that you won't be able to pay them much longer, there are things you can do to prevent foreclosure. The worst thing you can do is to do nothing while you hope for a miracle. That's probably not going to happen, but you can make other things happen with some time and effort.

The first thing you MUST do is contact your lender to let them know that your financial situation has changed or is about to change. Tell them that you won't be able to make the regular payments and ask them what they can do to help you. Make sure that they know that you want to avoid foreclosure and are willing to do whatever you can to stay in your house.

They may offer you a restructuring plan with your first phone call, but it's more likely that they'll tell you that they can't do anything until you're 3-4 months behind on your payments. While this seems like a very poor way to help someone avoid losing their house, it has to do with government guidelines specifically the ones for Fannie Mae and Freddie Mac, which may have been involved in your initial mortgage agreement.

Stay calm. Write down as much as you can of your phone conversation with them and ask them to send you any documents they can think of that will explain your options.

If you've already fallen behind on your payments, you may be offered one of several options by your bank. They may let you reinstate your loan if you can come up with the past due amount within a time frame you both agree on. This is only a good option if you expect that your financial bind will ease by that date.

They may offer you a forbearance plan that reduces or even suspends your mortgage payments during the time that you're unable to pay the full amount on time. Once again, this only works if you're sure that you'll be back to work or have another job by the date you both agree on. At that time, they'll work out a plan for you to add in your back payments so that you can get them current.

The best option for many people, but one that is hard to get, is loan modification. This actually reduces the amount that you owe by either reducing the interest rate, adding the missed payments to the loan balance or by lengthening the time of the loan. So, for instance, your 20 year mortgage at 8% interest may become a 30 year mortgage at 4% with your back payments of $1,200 a month for four months rolled into it.

If worse comes to worst and you find yourself having to file for bankruptcy, you may be able to get a reduction of part of your mortgage. In Chapter 13 bankruptcy the court may allow you to keep your mortgaged house, for example, by having you pay lower payments on a lesser balance over the course of 3-5 years.

The most important thing that you have to keep in mind when you're negotiating to avoid foreclosure is that the people you're dealing with want to see a good faith effort on your part to do anything you can to pay your debt. It's not a matter of saying that you can't pay your mortgage so the bank or the federal government will just excuse it and give you the house. That isn't going to happen. What might happen is that you and your loan company can find a solution that you can afford that also works for both of you and keeps you in your house and out of foreclosure.
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