Facing Home Foreclosure? First, Don't Panic.
If you are facing foreclosure, there are several steps you should take to a) keep your home, and/or b) minimize damage to your credit rating and future ability to buy a home.
Step 1: Stop feeling ashamed. You're not alone. You are not the only homeowner facing foreclosure today. In fact, in December, 2008, nearly 60% of all home sales closed in the Greater Grand Rapids area were foreclosures or short sales (home sales where banks negotiated the amount owed in order to minimize their losses.)
Keep this in mind: Unlike 5 years, ago, lenders today are recognizing how deep and widespread the foreclosure problem is and they are more willing than ever before to work with homeowners to avoid foreclosure.
Step 2: Determine whether your deficit is short-term or long-term. Are you struggling because of a temporary job layoff or medical problem, or is it more long-term, like a permanent pay cut, job loss or divorce? Be realistic. It will help you establish the correct plan of action later. If you determine it is temporary, try to estimate how long it will take you to get back on track.
Step 3: Review your assets and liabilities. Do you have any savings you can access? Do you have a 401K you can borrow against or a whole-life insurance policy? If you paid off some or most of your credit card balances with those hidden assets, would you be able to make your house payment? Do you have assets you can sell -- recreational vehicles, boats, snowmobiles, guns, jet skis, motorcycles, big-screen TV's?
Step 4: Ask for help. Asking friends or family for money isn't easy but ask yourself this: If they needed your help and you could give it, would you? Now is as necessary a time as any to put pride aside and ask for help if you need it.
Step 5: Consult an attorney. The only reason this step is not Number 1 is that most attorneys will want to know the information you have collected in the steps above. It will save you money to go to an attorney with some legwork already done.
I must emphasize how important an attorney's guidance is in the foreclosure process. Unless your Uncle Harry passed the bar, he is not an attorney. I am not an attorney. Most Realtors are not attorneys. Only attorneys are attorneys, and right now, you need one.
It is absolutely critical that you know what your rights and responsibilities are during the foreclosure process. Follow your attorney's advice. What I offer in this article are suggestions, but whatever you do, heed your attorney's advice.
Step 6: Establish a Plan of Action. Once you know your resources, the expected duration of your situation and your legal rights and responsibilities, determine your plan of action. Are you going to attempt to stay in the home and get back on track or simply turn the keys over to the bank.
Step 7: Call your lender sooner than later. If you call your lender within the first month or two of missing a payment, they will be much more receptive to working with you than if you call a week before the sheriff's sale.
Ask to meet in person, if possible. If that's not possible, ask to speak to someone in their Loss Mitigation Department.
Explain your situation, including how long you expect the situation to last. If the problem stems from temporary unemployment, for example, you will find many lenders will work with you to get back on track. You may reach an agreement to skip a payment or two, reduce the payment to interest only, negotiate a lower interest rate, etc. Your lender may also agree to a "short sale," which is when a lender agrees to accept less than the full amount owed on the mortgage in order to minimize its expense of going through the foreclosure process.
Step 8: Try to sell your home on a short sale. If you choose this option, be sure you find experienced, knowledgeable help. You need a Realtor who is familiar with the short-sale process and a good real estate attorney. Read my article "What is a short sale and is it right for me?" here on Factoidz.
Step 9: Know when to throw in the towel. Let's face it. If you have no resources left, you see no end to your financial dilemma in sight and you cannot work out any arrangements with your bank, you must accept you will be facing foreclosure. Even so, you still have choices to make about how to handle it:
1. Remain co-operative but don't be bullied. Banks' loss-mitigationÃ‚Â departments are accustomed to angry homeowners so lashing out at themÃ‚Â will do no good. Likewise, don't allow the lenders to bully you into anyÃ‚Â actions that areÃ‚Â not in your best interest. Refer them to your attorney andÃ‚Â simply say, "IÃ‚Â appreciate your position and thank you for your call." Then hang up.
2. Keep the property maintained. If a lender sees its collateral beingÃ‚Â abused or abandoned, it may choose to accelerate the foreclosureÃ‚Â process to protect its investment. Keeping the home maintained is in your interest, too. It will reduceÃ‚Â repairs required to sell the home on the foreclosure market and thus minimizeÃ‚Â your potential additional liability.
Foreclosure is one of the most stressful situations we can experience in life. But it can signal a new beginning. It depends on the way you choose to see it.
Watch for more real estate articles -- on home staging, pets' impact on your home's value, mistakes to avoid when buying and selling real estate and more!