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Avoiding Foreclosure

Home owners who are facing foreclosure often dread dealing with the facts that got them to that place. Few home owners actually plan to go into foreclosure. 



Reasons For Pending Foreclosure 

   • Job loss / unexpected unemployment
   • Sudden illness or medical emergency
   • Death in the family
   • Divorce / loss of second income
   • Excessive debt obligations
   • Job demotion or promotion denials
   • Inability to pay an adjustable interest rate that increases
   • Unexpected major home maintenance expense 
 

How to Avoid Foreclosure

The best way to avoid foreclosure is to prevent the filing of a Notice of Default. Lenders do not want to foreclose but will file a Notice of Default to protect their interests, if necessary. If you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender. 
Don't put it off, be embarrassed or ignore letters from your lender because those responses will make the situation worse, not better. Depending on your particular situation and hardship circumstances, here are some options your lender might propose to you:

   • Time to make up your payments.
Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you. This is called forbearance.

    • Forgiving a payment. 
If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens. 

    • Spread out the missed payments over a longer term.
For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan. 

    • Changing the terms of your loan.
If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period. This is called a note modification. 

    • Add the back payments to your loan balance.
If you have sufficient equity and meet the lender's lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan. This is called a refinance. 

    • Make a separate loan to you.
Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim. 
as their specialty.

Ways to Stop Foreclosure

When the lender files a Notice of Default, your options are limited. That is why it is better for you to call your lender before falling behind on your payments, because lenders are often reluctant to work out repayment schedules after foreclosure proceedings have been commenced. 
You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure: 

• Sell Your Home. 
Get an opinion of market value and average time to sell your home. You might be tempted to hire a discount broker, but many sellers feel they need the exposure and marketing that offer. Compare both to determine which best meets your needs and time frame. 

• Consider a Short Sale.
If your home is worth less than the amount you owe, you might be a candidate for a short sale. A short sale affects credit but it's not as bad as a foreclosure. You will need to negotiate with your lender to find out if the lender will cooperate on a short sale. This is called a pre-foreclosure redeemed. 

• Sign a Deed-in-Lieu of Foreclosure 
This is called deeding the home back to the lender. The homeowner gives the lender a properly prepared and notarized deed, and the lender forgives the mortgage, effectively canceling the foreclosure action. We've not had much success with this method in the last couple of years. With so many bank owned homes, another deed is the last thing the lender wants. 

What is Fannie Mae?
The entity that holds great power in the conventional mortgage market is Fannie Mae. Fannie Mae is America's largest mortgage buyer, a private corporation, which buys mortgage loans in the secondary mortgage market. Because Fannie Mae would end up with the properties back if borrowers default, Fannie Mae has a strong interest in setting forth stringent guidelines to lessen the chance a borrower will go into foreclosure.
Fannie Mae revised its guidelines and now addresses separate waiting periods depending on the type of foreclosure. 
If you have documented extenuating circumstances, this will have a direct bearing on the number of years you will have to wait to get a conventional loan if you were to go into foreclosure. 

What Are Documented Extenuating Circumstances?

Fannie Mae allows for extenuating circumstances such as: 

• Illness 
• Job Transfer 
• Accident Resulting in Severe Injury 
• Death of family member 
Generally, extenuating circumstances are things that happen beyond your control, which dramatically affect your ability to continue making payments on your mortgage. With documented extenuating circumstances, the waiting period is less than without. 

Waiting Period to Buy After Foreclosure Buying After a Foreclosure 

The waiting period is 5 to 7 years. 

Buying After a Foreclosure With Extenuating Circumstances 

The waiting period is 3 to 7 years. 

Buying After a Deed-in-Lieu of Foreclosure 

The waiting period is 4 to 7 years. 

Buying After a Deed-in-Lieu of Foreclosure With Extenuating Circumstances 

The waiting period is 2 to 7 years. 

Buying After a short sale 

The waiting period is 2 years. 

However, if a seller does not have a 60-day late payment, that seller may be able to immediately buy another home. It's a reason to stay current on your payments while the home is on the market as a short sale. 

Fannie Mae revised its guidelines and now addresses separate waiting periods depending on the type of foreclosure. If you have documented extenuating circumstances, this will have a direct bearing on the number of years you will have to wait to get a conventional loan. 

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