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How to Avoid Foreclosure

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There are few words that strike more fear into the hearts of homeowners than "foreclosure." A foreclosure is the process of losing the rights to your home because of defaulted mortgage payments to the lender. The lender will then try to sell your home to make up for the lost money you did not repay them. If you wish to avoid foreclosure, you need to understand all of your home financing options.

Stop foreclosures before they can start

Make sure you can afford your home when you buy it
The simplest way to avoid foreclosures is to always have enough money to pay monthly mortgage payments. Some lenders are predatory and will lend to prospective homeowners fully knowing that they do not have the financial means to make regular mortgage payments. Even though the foreclosure process is often costly for lenders, they will not think it their responsibility to warn you that the home financing plan that you come up with is unlikely to work for you.

It always is a good idea to keep track of all of your expenses and remember to adjust for interest rates when factoring in how much mortgage payments will cost you on a monthly basis. If you can't afford to make the mortgage payments regularly, you can't afford the home. Either refinance or choose a cheaper place to live.

Contact your lender if you are having trouble making mortgage payments
Even if you are conscientious with your finances, unforeseen circumstances like medical bills or unemployment can still make paying for mortgages difficult. If you find yourself having difficulty making mortgage payments, don't view the lender as the enemy, contact them and try to work something out. Lenders normally have a lot to lose when forced to foreclose, so they should try to help you come up with some type of payment plan.

Here are some ways you can work with your lender to avoid foreclosure:
  • If you can convince your lender that you are just having temporary financial problems, they may give you a small time to get your stuff together before they expect a payment. They could ask for a larger sum at a later date or freeze your monthly payments for a time.
  • They could extend the time period of the loan. This means that you'll pay less monthly because the duration of the time that you have to pay is increased. This is called extending the amortization.
  • They could change the interest rate. This is normally determined by your credit rating. In a rough situation, the lender could do the opposite of what they did when determining it in the first place, and make the interest rate less because you are having financial trouble.
  • The interest rate can also be changed from adjustable rate to fixed rate or visa versa. Adjustable interest is sometimes more affordable at first and more expensive later, so changing the type of interest rate may soften the blow of monthly payments depending on where you are at in your mortgage payments.
Hire a housing counsellor
A housing counsellor can negotiate with the lender on your behalf and know all of the ways to refinance to avoid foreclosure. A good housing counsellor can be very effective in getting lenders to come to more favourable mortgage terms. Beware of bad counsellers, however, because they can charge thousands of dollars guarantee to halt the foreclosure process, and leave you only having delayed the inevitable.

Contest the foreclosure

If the lender goes ahead and starts the foreclosure process, then you need to formally file a written answer to the foreclosure. This should stop whatever court that the lender filed the foreclosure with from making an automatic judgement against you. You need to present a legal reason why the foreclosure should be stopped now.

Ask that the lender produce the promissory note
The promissory note is what you sign that details all the specifics of your loan and mortgage. Lenders are supposed to hold onto this. If they don't have the note, the foreclosure could be halted because then the whole basis of the mortgage agreement is put into question. Usually, however, reputable lenders will have the note and asking for them to produce it will only serve as a stall tactic.

Sell your home during the redemption period
The redemption period is usually a six month period after a foreclosure is underway when you still can reclaim your house if you pay off all the expenses to the lender. Additionally, you can sell the home during this period and pay off the contested amount that way.

Work out a "deed in lieu of foreclosure"
This is a deal you can make with your lender to simply give the deed to your house to them in exchange for ending the whole foreclosure process. This means there is nothing else you would have to pay them, but it also means that you no longer can live in your house. It does give you the means to move somewhere more affordable.

Foreclosures can be avoided, even when it seems that they are inevitable. Remember to always hire trusted counsellors and lawyers when dealing with your lender. There is always hope even in the most desperate of situations.

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on July 28, 2014 - Moving Expert
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