Most people fighting foreclosure believe laws are designed to hurt them rather than help them and their lender will leave no stone unturned in order to bring their property to foreclosure. Nothing can be further from truth.
The reality is, the current legal system protects borrowers and gives them enough time to recover financially or simply negotiate their way out of foreclosure. Most lenders try to avoid the hassles of foreclosure. They are in the business of lending money, not real estate. So they will try to work out a plan with you to help avoid foreclosure. The only hurdle most underwater homeowners face is their personal lack of knowledge about the foreclosure process, which can be remedied by reading the rest of this post.
“An investment in knowledge pays the best interest.”
This is by no means a comprehensive list of all actions and procedures that can be taken when your home is in the process of foreclosure but we have arranged the top 10 reasons in an easy to follow list:
1) Don’t Cut Off Communication with Your Lender
The biggest mistake most homeowners make is that they try to ignore notices and calls from their lender. It’s like burying your head in the sand, hoping that the problem will go away on its own. In reality, your problems will only compound if you don’t proactively try to understand your situation and take necessary measures. If you don’t talk to your lender, the bank will assume that you aren’t serious about saving your home and proceed to expedite the process of foreclosure instead of giving you any leeway.
Please don't do this, it's not as fun as it looks
2) Loan Modification
If you are unable to pay installments because monthly payments have become unaffordable, you can get your lender to modify your loan. Your lender can spread your loan out over a longer duration. For example if the amortization period is 20 years, your lender can extend it to 30 years, thus lowering the amount of your monthly installments.
3) Refinance
Another option to avoid foreclosure is refinancing. Instead of adjusting the terms of your existing loan, your lender can approve a new loan with a reduced interest rate and a longer amortization period. Since this will be a new loan, certain processing fees and closing costs will be assessed.
4) Are Your Financial Troubles Short-Term?
If your financial problems are short-term, you can ask your lender to temporarily suspend a few mortgage installments. You can then resume payments once you recover financially. Temporary suspension of mortgage payments is called forbearance. However, you still need to catch up on payments in default, as well as any past-due fees, costs, and penalties incurred as a result of the default.
5) Seek Counseling
In order to fight foreclosure, you must know how the process works and what your options are. You should seek professional counseling to know what steps you can take to save your home depending on your individual situation. The Department of Housing and Urban Development (HUD) works with counseling agencies all over the United States to ensure that homeowners in trouble such as yourself have access to professional advice and counseling in regards to their property. In most cases, you should be able to approach government-appointed counselors and seek guidance completely free of cost. Below is a link to the local New Jersey HUD Office:
https://portal.hud.gov/hudportal/HUD?src=/states/new_jersey/offices
6) Foreclosure laws are state-specific
Generic advice on foreclosure that you can get from the internet and other sources may not help your situation because foreclosure laws are state-specific. The foreclosure process is judicial in some states, and non-judicial in others. Your lender will file a foreclosure complaint in a court if you live in a state with a judicial foreclosure process while the court’s intervention is not required in a non-judicial state. This means that your overall strategy for fighting foreclosure will depend greatly on which state you live in.
7) Are there any loopholes in the foreclosure process?
You need to ensure that your lender is abiding by the law when initiating foreclosure. Your lender has to notify you a fixed number of days in advance before starting foreclosure proceedings. Make sure that you were served a notice in a proper, legally-defined format. In addition, it is a good idea to check if your lender sold your loan to third party investors. If so, your lender may not be able to produce the required ‘promissory note’ (a set of documents detailing all the terms of the loan), providing you enough grounds to delay foreclosure if not stop the process entirely.
If you have applied for a loan modification, then you are in luck because by law, your lender cannot initiate foreclosure. In addition, make sure the documents related to your lender's foreclosure complaint are free from factual errors. Many lenders robo-sign foreclosure documents, without reviewing them properly.
8) Take advantage of government programs
If your loan is backed by the government, you can refinance or modify your loan under the Home Affordable Refinance Program (HARP) or the Home Affordable Modification Program (HAMP). You can also check out Home Affordable Foreclosure Alternatives Program (HAFA), a government initiative to help homeowners avoid foreclosure through a short sale or a deed-in-lieu of foreclosure (DIL).
9) Short Sale
Speaking of short sales, it is possible to sell your home to a third-party buyer while the property is under foreclosure. You will need to keep your lender in the loop if you decide to go forward with a short sale. Your lender should agree to settle the loan for “less than agreed”. You can then proceed to short sale through HAFA or work out a deal with your lender independently.
10) Bankruptcy
As a last resort, you can approach a court and file for a bankruptcy application if you wish to keep your home at any cost. Keep in mind that both foreclosure and bankruptcy can severely damage your credit, so you may not be able to take out a new loan for many years afterwards.
Conclusion
Don't give up hope if you have been served a foreclosure notice by your bank! There is still plenty of time to consider all your options and execute the right plan of action to save your home! Just make sure to take a deep breath and go into your decision making process with a calm, rational state of mind. Do not hesitate to take a walk outside or get a good night's rest if necessary, you do not want to get angry and make a rash decision.
Written by Brandon Lor