Behind in your mortgage payments? Afraid of foreclosure? It may not be too late to save your home from the sheriff's sale. Contacting your lender is your first step. If you're only 1 or 2 months behind, there may several different options available to you. If you're 3 or more, the options are less, but there are still ways to save your homestead.
The first thing you'll need to know is if your loan is a fixed rate mortgage or an adjustable, sometimes called a variable rate. If you have a fixed rate loan but you've had some type of unforeseen crisis; illness, layoff, death of a family member, lenders may offer you different options than people who have an adjustable rate, or ARM, loan.
There are basically 3 options that lenders can offer to help you with a defaulting mortgage.
1. Loan Modification-with this option, the lender does an 'internal' refinance of the mortgage. They create a new mortgage, with new terms, usually from an ARM loan to a fixed rate, and roll the past due payments into the new mortgage. The lender will typically ask you to pay a percentage of the past due amount up front as a show of good faith. They must be able to see that the mortgage is sustainable by you, usually by giving them a thorough budget showing some discretionary income each month, before they will entertain this option. There are many budget worksheets available online or you can call a credit & counseling service to do this. I recommend a non-profit organization, such as: Consumer Credit Counseling Services, http://www.cccsatl.org/ . Your mortgage may be for a higher loan amount with your past due balance rolled in, but if the interest rate is lower and fixed, it may not require a higher payment each month like some ARMs will.
2. Forebearance-this option allows the lender to take the past due amount and defer it to the end of the loan term. Let's say you owe $3,000 in past due payments. The lender may require you to pay, perhaps, $1,000 up front as good faith, produce a sustainable budget and then they take the remaining amount and put it at the end. If your payment is $500/mo, this would equate to an extra 4 months added to your term. If you have a 30 year term and have only 21 years left, now you would have 21 years and 4 months before your loan is paid in full. ($3,000-1,000 good faith = $2,000/500 = 4 months)
3. Repayment Plan-this is the most likely option that lenders offer if you show that you can support it. The lender takes the total amount due in late payments, sometimes late fees as well, and after you pay a good faith amount, they spread the remaining amount over a specific number of months to get you caught up. For example: you owe $3,000 but your budget shows you have $600/mo in discretionary income each month. The lender may want half of that discretionary income added to your regular payment over the course of the next 6 months. ($3,000 -1,200 good faith = $1,800 / 300 = 6 months.) If your normal house payment was $500, now it will be $800 for the next 6 months, then it will drop back to the normal amount of $500/mo. Frequently people agree to terms that are not manageable and they will then 'break' the plan. Once the plan is broken, the lender is less willing to create a new one. Make sure that if you agree to a plan, that it is one that actually can work for you, based on your budget. Giving the lender an unrealistic budget will create an unrealistic plan, one which you won't be able to meet and then you'll find yourself in an even worse situation.
4. Bankruptcy-filing for bankruptcy will stop foreclosure immediately. Bankruptcy laws have changed in the last few years so you should seek advice form a bankruptcy attorney before deciding on this option and should most likely be used only as a last resort.
Lenders don't want your house. They want their money. If you contact them early during your crisis, they will be more willing to help you keep your house. If you create a budget and discover that the new job simply doesn't pay enough or your spouse's injuries won't allow him/her to return to work for longer than expected, you have no savings and no family support, you may have to face other, more drastic measures.
1. Short sale- contact your lender and tell them that you have decided that you need to sell your house but that your neighborhood doesn't support your ideal sales price, maybe not even enough to pay off what you owe. The lender will usually order an appraisal to determine what your house should be worth in your area. They then may agree to accept the price that the appraiser indicates as its worth, which may be far less than what you owe them. Then if you get a buyer for that price, your mortgage company will accept it. If the price is much lower than what you owe, you should be prepared for a 1099 at the end of the year showing the difference between what you owed and what you sold for as income. Please see your tax advisor to discuss this possibility. Your credit report will be spared a foreclosure and will most likely show "settled for less than owed" type comment.
2. Deed-in-lieu-of-foreclosure- if you decide that there is no other option available to you, you may offer the lender a deed-in-lieu-of-foreclosure. You would sign over the deed to your house to the lender. Now your lender owns your house. This saves the lender the time and expense of foreclosing on you and they know that you plan to leave. They also know that they won't have to evict you, which can also be expensive. Some lenders have a program called 'cash for keys' as well where they pay you a small percentage to live in the house until shortly before the foreclosure auction or sale and maintain the house so the new buyer doesn't have excessive repairs to make. This cash is for your moving expenses, rent and or security for a new place to live. For this, you agree to keep the house 'broom-clean' when you leave. The lender does this so you have less incentive to destroy the house which may create a hardship for the lender to re-sell it.
3. Foreclosure- this is the last option, where the lender sends you a foreclosure notice and and eviction date. Each state has a different timeline for foreclosure and you should check in your state for the average time. Some states allow foreclosure very quickly, in as little as 3 months, you could be out of your house. Others take as long as 12-15 months to actually foreclose and evict. If you have decided that there are no other options available to you, start saving your money for the move but STAY in the house until you are forced to leave. There are almost NO lenders that will evict you during the winter months if you have no where to go. They would rather have you stay in the house with heat on and water running than have an empty house that the pipes could burst in before they're ready to sell it. Yes, they don't care as much about you as they do about the house at this point, so their generosity is not about you being out in the cold as the house having maintenance issues as a result of the cold weather and being in the off-season for selling it. So don't abandon the house just because you have decided there's no way to save it. Start making plans as to where you can go when the inevitable happens but stay there and save as much money as you can before that occurs. Be cooperative with your lender, it may buy you more time as well.
There are other options not outlined here such as: lease with option, renting the house for most of the payment if you can keep up with the rest so you can have it back when finances allow, taking in a roommate, or renting an extra room out, taking on a part time job, etc. to make ends meet. Check with your local resources, such as the Salvation Army, Red Cross, Angel Food Ministries, etc. to get help with utilities, food items, if your situation is temporary and to free up some funds for the mortgage until things stabilize. Check the Internet for assistance in your neighborhood or state initiatives. Ohio, for example has some of the best, including rescue loans, rescue funds, budgeting help, and more. Contact a non-profit counseling service for help also, such as 1-800-995-HOPE. While they don't have funds available, they can go through your budget and offer assistance in many ways.
Whatever you decide, there are ways to make the situation better, more acceptable and possibly save your house from foreclosure.