Act Now to Stop Foreclosure and Save Your Home

The biggest mistake you can commit when you fall behind on your mortgage payments is to wait too long to tell your lender what is going on. It’s never too late to do anything but to prevent foreclosure, it is better to be proactive than reactive.

Acting fast is very important. It is extremely important to contact your lender as early as possible, after you find yourself unable to make your loan payments. Most of the major lenders have programs for mortgage modification, forbearance, or other remedies that can help you prevent foreclosure. More than half the people who go into foreclosure never respond to letters from the lenders, nor contact the lenders. Your options become limited as time passes by. Contact your lender immediately and tell the lender about your situation. Once you contact your lender, they can allow payment delays, mortgage modification, and come up with new repayment plans, or they may negotiate a lump-sum payment.

When it comes to preventing foreclosure, every minute counts. Early contact – within the first 15 days of missing a payment – is critical in saving homeowners from the devastation of foreclosure. More than half of those in foreclosure did not call for help when they fell behind in their mortgage payments. Do not hesitate to contact you lender. There is nothing to fear about or be embarrassed.

You can get emotional or fear contacting the lender when you face foreclosure. But you must contact the lender. You are not alone. There is nothing to be embarrassed about missing a mortgage payment.

Remember your loan servicer – who you get your monthly statements from may be different from the one who actually owns your loan. If you are not sure whom to contact, call the number on the statement and they will advise you.

Explain your situation to the lender. Once the lender appreciates the situation, he may come up with a workable suggestion. Remember, all this time his aim would be the same as yours – you are able to pay and the house remains in your hands. This can be done by increasing the number of installments which you were required to pay. This will ease the situation for your and lender’s money also remains the same. In fact, as a simple calculation may tell, the lender gains financially. Depending on your situation and the status of your mortgage, there may be different options available to you including restructuring.

• refinancing
• selling your home
• deed in lieu of foreclosure

Be honest about your situation, so they can help you find the right solution. Lenders usually offer a variety of solutions for people who have fallen behind on their mortgages including temporarily reducing or waiving payments, setting up short-term repayment plans to help you make up the deficit, adding the unpaid balance to the principal of your loan and increasing your payments slightly to cover the extra amount, refinancing the debt, arranging a repayment plan or modifying the loan by adjusting the interest rate or extending the terms to make it more affordable. These options are discussed in detail in the following chapters.

However, if your situation is really bad, the lender may even agree to make other concessions. For example, the lender may be willing take less money in settlement of your dues. Once the lender realizes that the situation of the borrower has become very nonviable, it is time for the lender to retrieve whatever possible from a potentially bad situation.

If the lender feels that the only way of saving the situation is to reduce the financial burden on the homeowner, the lender may also agree to reduce the interest.

The lenders have even been known to reduce the principal. It all depends on what sort situation the borrower finds himself in. It goes without saying that the lender will not be happy to do this, but then again, he has to reassess the circumstances and then decide.

If you cannot keep your home, your lender can work with you to avoid foreclosure and reduce the negative effect on your credit reputation. For example, the lender can permit a qualified buyer to take over your mortgage debt and pay the mortgage payments, even if the mortgage is non-assumable. As a result, you may be able to sell your property and avoid foreclosure.

Don’t just sign your home away and walk out. Negotiate. Whatever be your situation, never ever enter into any deal without consulting an attorney. Never make an impulse decision. Your instincts will drive you to make quick decisions in order to resolve defaults as soon as possible. Before taking any decision, weigh the pros and cons.

Deed in lieu helps you stay away from foreclosure

If you can’t keep up with the monthly payments on your mortgage and want to stop a foreclosure on your home, you should consider going for a deed in lieu. To find out what deed in lieu is all about, and whether there’s a better alternative, check out the topics below.

What is a deed in lieu?

A deed in lieu of foreclosure is where you deed your property to the lender in exchange for being forgiven the entire amount of the mortgage. The lender then sells off the property in order to retrieve as much of the unpaid mortgage amount as they can.

How does a deed in lieu work?

If you choose to try for a deed in lieu in order to avoid foreclosure, you need to sign several legal documents such as the Agreement in Lieu of Foreclosure and a deed. The first document sets out the terms and conditions of the deed-in-lieu, and is signed by both the lender and borrower. The second document, which is the deed, conveys legal ownership of the property to the lender.

The lender marks the borrower’s note as “paid” and provides the borrower with two documents – one which states that the debt is canceled and the other waives the lender’s right to a deficiency judgment (the lender’s right to ask for the amount of the debt they are unable to recover from the sale of the home).

The agreement for deed in lieu of foreclosure is executed through an escrow company which receives the borrower’s note (marked as “paid”) from the lender. The escrow then records the deed in the property’s file at the county recorder’s office and sends the note to the borrower, releasing the borrower from all obligations under the mortgage.
What are the tax consequences?

When you go for deed in lieu, you may have to pay 2 types of taxes. They are:
Deed tax: Since deed in lieu foreclosure involves the transfer of property, the borrower may need to pay a state deed tax on conveyance of property to the lender. The deed tax is $1.65 if there is no consideration, or when consideration is $500 or less.

The tax is calculated on the difference between the fair market value of your property and your mortgage balance plus any liens removed from the property due to the deed in lieu.
Income tax on canceled debt: Under the Mortgage Debt Forgiveness Tax Relief Act (applicable till the end of 2012), you do not need not pay any income tax on canceled debt (unpaid loan balance which is forgiven by lender) resulting from a deed in lieu. However, a borrower will need to satisfy certain conditions for mortgage tax relief.

Is loan modification better than deed in lieu?

Mortgage loan modification is a better option than deed in lieu of foreclosure because it helps you keep your home. At the same time, you can save your credit scores from taking a big hit. That’s because loan modification allows you to negotiate a lower interest rate and monthly payment on your mortgage.

If you have missed payments, they can be added to your principal balance and the term extended so that your monthly payments become affordable. So, loan modification is a better choice than a deed in lieu.

However, if you don’t have sufficient income to meet your monthly payments, you won’t be approved for loan modification. If this is the case, a deed in lieu may be your only choice to prevent foreclosure if your lender agrees.

Deed-in-lieu of foreclosure can be an option to avoid foreclosure

Foreclosure can be one of the most painful financial experiences for any customer. Not only do you lose your home in foreclosure, but it can have a long-lasting impact on your credit rating. It is always advisable that you do all you can to avoid foreclosure as much as possible because foreclosure is a serious situation with serious repercussions such as derogatory information on your credit report. The recession of recent years has resulted in great financial hardship for thousands of Americans and this has unfortunately given rise to an alarming increase in the incidents of foreclosures. While this has resulted in a lot of pain for the thousands of people who have been affected, many people have resorted to options such as deed-in-lieu of foreclosure in order to avoid foreclosure.

While through a deed-in-lieu of foreclosure you would be able to avoid a foreclosure, this is never an option for those who are looking for ways to save their home. This is because in this process, the home must be moved out of. In the deed-in-lieu of foreclosure process, the homeowner gives the deed of the house to the lender who in return agrees not to pursue legal court ordered foreclosure proceedings. The deed is turned over to the lender once the parties have completed a written agreement that details the terms and conditions. If you are wondering what this deed is, it is a publicly recorded document that states who owns the property in question. So when you offer a deed in lieu of foreclosure, it means that you as homeowner will voluntarily sign over the deed to the lender giving them the ownership of your house.

Even though you would be able to avoid a foreclosure through a deed-in-lieu of foreclosure, it would definitely have a negative affect on your credit, although a bit lesser than having a home foreclosure on your credit report. Although you gave the deed back willingly, it would still signify that you couldn’t make your payments and the lender had to come after you. Also, by the time the lender will accept the deed in lieu of foreclosure, you would have missed several payments, and the damage would have been done.

As mentioned earlier, both the options would have a negative impact on your credit and getting mortgage after foreclosure or deed-in-lieu of foreclosure can be quite difficult if not impossible. You would need to be well-versed with the steps in buying a home after foreclosure if you want to increase the chances of approval. The good thing is that it is possible to rise from a bad credit situation. It is advisable that you consider the following when applying for a mortgage after having gone through a foreclosure:

Remember that foreclosure can have a huge negative impact on your credit. In addition to the stigma that is associated with foreclosure, you may also have to deal with the fact that it is difficult to obtain any type of credit, especially a home loan immediately following a foreclosure. Yet, since many factors contribute to the inability to repay a mortgage loan, you may still be able to afford a new home loan even after experiencing a foreclosure. Your experience with foreclosure (or near foreclosure such as a situation where you were forced to go for deed-in-lieu of foreclosure in order to avoid a foreclosure) might have been due to loss of employment, but you may be able to handle a new mortgage after you have found a new job. While your affordability may be your part of the story, in order to convince the lenders about this, you must make sure that you have rebuilt your credit before you apply for a mortgage.

Make sure that your debts with your existing creditors have been taken care of. Since rebuilding your credit after experiencing foreclosure is so important in order to get approved for new loans, you must make sure that you pay your other bills and creditors on time. Any late/ skipped payments will cause further damage to your credit rating. Shop around for mortgage lenders who are willing to lend to high risk customers

When applying for a mortgage loan after a foreclosure, many traditional lenders will not approve a loan request. But there are lenders out there who specialize in lending to high risk borrowers who have a difficult time securing financing. It may therefore, be a good idea for you to shop for such lenders as an alternative.

There can be various creative ways to avoid foreclosure besides a deed in lieu. It may be well worth the time to investigate these options before you decide to give the deed back. It is important that before taking your decision, you consider all your options that can keep you in your home and salvage your credit.

About the Author
By Mortgage Guru, submitted 2010-11-23

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