Foreclosure occurs when the homeowner is unable to make mortgage loan payments as required. If you miss payments, your lender may be able to legally take back the property through a legal process known as foreclosure.
What Are Your Rights?
- Why you are unable to make your mortgage payment
- If the hardship is temporary or permanent
- Details about your income and household expenses and other assets like money you may have in your checking or savings account.
Even if you don’t think you will be able to afford to keep your home, avoid foreclosure! It will ruin your credit score and could make it difficult for you to get future loans.
Don’t ignore letters from your lender. They may actually be helpful to you. The first notices you receive will offer good information about how you can prevent foreclosure.
Contact your lender immediately, before you fall behind. They may have options available to prevent home loss. Be prepared to explain:
CLS has a HUD approved Housing Counseling unit and has HUD-Certified Housing Counselors that can help you review your options and can assist you in the process.
The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development (HUD). The FHA insures some loans that can help people become first-time home buyers. These are sometimes referred to as “FHA-backed loans.” FHA-backed loans make it possible for lenders to offer you better interest rates and lower closing costs. FHA-backed loans have some different options for foreclosure prevention.
Determine whether or not your mortgage loan is an FHA-backed loan. Check your most recent loan statement to see if it indicates whether or not you have an FHA loan. If your loan is FHA-backed, you should find evidence of this by locating a 13 digit HUD case number.
Some lenders may be willing to work with you to help prevent you from falling into foreclosure. Here are some options that you may have.
Forbearance – If the reason you fell behind in your payments is temporary, your lender may be willing to offer you a temporary reduction in payments or suspend your payments for a short period of time. You will need to bring your loan current (meaning, all payments must be made) or enter a repayment plan with your lender once your temporary hardship has ended and you are able to start making payments again.
Modification – a modification is a permanent change to your mortgage loan. Your lender may be willing to add your overdue payments to your principal balance and reamortize the total amount in order to lower your monthly payment amount. Your lender can lower your interest rate, extend the years to your loan terms, or do both.
Partial Claim – A partial claim is a zero interest, no fee, junior lien on your property that will become payable when you sell your home, pay off your mortgage, or when your mortgage otherwise terminates. If you do not have an FHA loan, you can ask your lender if they offer an Advance Claim– this is the same as the Partial Claim, but available on non-FHA loans.
Short-sale.
A short sale, also known as a pre-foreclosure sale, is when a home sells for less than the balance remaining on their mortgage. You will need to get approval from your lender.
A short sale is an alternative to foreclosure, but because it is a sale, you will have to leave your home. If your lender or servicer agrees to a short sale, you may be able to sell your home to pay off your mortgage, even if the sale price or proceeds turn out to be less than the balance remaining on your mortgage.
Deed-in-lieu of foreclosure.
A deed-in-lieu of foreclosure is an arrangement where you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process. Borrowers who are considering a deed-in-lieu of foreclosure should also ask their lenders or servicers about help with their relocation expenses through private programs that are sometimes called “cash-for-keys.”
What Do You Need to Do?
Don’t ignore the calls from your lender. Answer their calls and open all the letters they mail to you. Oftentimes, they send information regarding assistance available to the borrower. You need to establish communication with your lender so they can understand your hardship. Complete the paperwork and gather all the documents.
If you are applying for any of the options to either keep, sell or leave your home, your lender will require that you complete an application and provide a list of documents to be considered for a workout. If you do not submit a complete packet, you might have to start the entire process all over again, so following their instructions is very important. If your lender asks for the last 2 months of bank statements, send them ALL of the pages, even if the page states “this page left blank intentionally”. If your bank statement lists page 1 of 8 you will need to send them ALL 8 pages.
If you are applying for any of the options to either keep your home or not, your lender will send you an application to complete and a list of documents to return with your completed application. If you do not submit a complete packet, you might have to start the entire process over again, so follow their instructions carefully.
If your lender asks for the last 2 months of bank statements, send them ALL of the pages, not even if they say “this page left blank intentionally”. If your bank statement lists page 1 of 8 you will need to send them ALL 8 pages.
What to Consider Before Taking Action?
If you have missed a payment, don’t be afraid to contact your lender. There are ways to get back on track and avoid foreclosure. Talk to a housing counselor about the options and alternatives that may be available to you.
If your income has been reduced or maybe you have unexpected expenses, such as medical bills or home repairs, it is important that you review your budget and make adjustments on your expenses to determine if you can afford a modified mortgage payment.
At CLS, our bilingual HUD-Certified Housing Counselors can assist you in working with your lender, developing an emergency budget, determining what options might be available and help complete the paperwork required by your lender in order for a solution to be offered.