How foreclosure occurs
When you miss your mortgage payments,
foreclosure may occur. This is the legal means that your mortgage company can use to repossess (take over) your home. When this happens,
you must move out of your house. If your property is worth less
than the total amount you owe on your mortgage loan, your mortgage
company or HUD could seek a deficiency judgment.
If that happens, you not only lose your home, you also would owe
your mortgage company or HUD an additional debt. Foreclosure or
a deficiency judgment could seriously affect your ability to qualify
for credit in the future. So you should avoid it if all possible!
Don't ignore letters from
your mortgage company. If you are having problems making your payments,
contact your mortgage company immediately. Explain your situation.
Be prepared to provide them with financial information, such as your
monthly income and expenses. Without this information, they may not
be able to help. Stay in your home for now. You may not qualify for
assistance if you abandon your property.
Alternatives to foreclosure
Special Forbearance. Your mortgage company may be able to arrange
a repayment plan based on your financial situation. Your mortgage
company may even provide for a temporary reduction or suspension of
your payments. You may qualify for this if you have recently lost
your job or your source of income or if you had an unexpected increase
in living expenses. You must furnish information to your mortgage
company to show that you would be able to meet the requirements of
the new payment plan.
Mortgage Modification. You may be able to refinance the debt and/or
extend the term of your mortgage loan. This may help you catch up
by reducing the monthly payments to a more affordable level. You may
qualify if you have recovered from a financial problem but your net
income is less than it was before the default (failure to pay).
Partial
Claim -Your mortgage company may be able to work with you to obtain
an interest-free loan from HUD to bring your mortgage current. You
may qualify if:
-
Your loan is at least
4 months delinquent but no more than 12 months delinquent;
-
Your mortgage is not
in foreclosure; and
-
You are able to begin
making full mortgage payments.
When your mortgage company files a
Partial Claim, HUD will pay your mortgage company the amount necessary
to bring your mortgage current. You must execute a Promissory Note,
and a Lien will be placed on your property until the Promissory
Note is paid in full. The Promissory Note is interest-free and will
be due if you sell or leave your property, or when your mortgage
matures.
Pre-foreclosure sale. This will allow you to sell your property
and pay off your mortgage loan to avoid foreclosure and damage to
your credit rating. You may qualify if:
-
The "as is" appraised
value is at least 70% of the amount you owe and the sales price
is 95% of the appraised value;
-
The loan is at least
2 months delinquent prior to the pre- foreclosure sale closing
date; and
-
You are able to sell
your house within 3 to 5 months (depending on what your mortgage
company agrees to).
An additional benefit to this option
is the assistance you will receive with the Seller-paid closing
costs.
Deed-in-lieu of foreclosure. As a last resort, you may be able to
voluntarily "give back" your property to the mortgage company. This
won't save your house, but it will help your chances of getting
another mortgage loan in the future. You can qualify if:
-
You are in default
and don't qualify for any of the other options;
-
Your attempts at selling
the house before foreclosure were unsuccessful; and
-
You don't have another
mortgage in default.
A housing counseling agency
can help you determine which, if any, of these options may meet your
needs. You should also discuss the situation with your mortgage company.
Foreclosure scams
One last thing, beware of
scams! Solutions that sound too simple or too good to be true usually
are. If you're selling your home without professional guidance, beware
of buyers who try to rush you through the process. Unfortunately,
there are people who may try to take advantage of your financial difficulty.
Be especially alert to the following:
Equity skimming. In this type of scam, a "buyer" approaches you,
offering to get you out of financial trouble by promising to pay
off your mortgage or give you a sum of money when the property is
sold. The "buyer" may suggest that you move out quickly and deed
the property to him or her. The "buyer" then collects rent for a
time, does not make any mortgage payments, and allows the mortgage
company to foreclose. Remember that signing over your deed to someone
else does not necessarily relieve you of your obligation on your
loan.
Phony counseling agencies. Some groups calling themselves "counseling
agencies" may approach you and offer to perform certain services
for a fee. These could well be services you could do for yourself,
for free, such as negotiating a new payment plan with your mortgage
company, or pursuing a pre-foreclosure sale. If you have any doubt
about paying for such services call HUD-approved housing counseling
agency. Do this before you pay anyone or sign anything.
Here are several precautions
that should help you avoid being "taken" by scam artist:
