The topic of home foreclosures has become quite a political brouhaha. As of this writing, 50 state attorneys general are getting ready to launch major investigations into the already beleaguered mortgage industry, concerning foreclosure document improprieties.
The mess stems from recent disclosures of falsified documents and forged signatures submitted by banks during foreclosure proceedings. Proposed reforms include compelling mortgage companies to overhaul the manner in which they handle foreclosures, to prevent them from using dishonest paperwork to stampede homeowners out of their dwellings. Violations would carry severe fines and penalties.
However, these reforms are still down the road and won't help hard-pressed homeowners who need help now. If your bank is trying to squeeze you from your home, consider these options:
1) Carefully scrutinize all information.
Take nothing for granted; trust no one; assume nothing. That means you should closely read all documents you receive from your lender or trustee. Put a magnifying glass to the fine print. If you don't understand something, don't be embarrassed -- some contracts are purposefully obtuse to allow/prevent certain loopholes. Ask your lender to explain specifically what you're agreeing to. And remember, no one can ever force you to sign something. If you feel uncomfortable, ask to speak with your lender's manager.
2) See if a payment will extricate you.
Determine how much money it would cost you to stop the foreclosure. If there's an amount of money that would stave off foreclosure, then pay it. Get a precise total, as to the entire amount of back payments and charges. Don’t lose your home over a single back payment that you can scrounge together.
3) Seek a compromise.
In our free-market system, you only get what you negotiate. Put another way, you never know what you can get, until you actually ask. Test the waters. See if you can hammer out a compromise to make adjusted payments to the bank or trustee.
Lenders make money off your home mortgage, from your principal and interest payments. Foreclosure is neither an attractive nor lucrative option for them; in fact, lenders typically lose $50,000 or more on just one foreclosure. You might be surprised by your lender's flexibility and willingness to work out a deal. A foreclosed home is an albatross on their balance sheet; knowing this fact gives you negotiating leverage.
You could suggest suspension of your payments for a short time, to give you breathing room to clean up your finances. Another suggestion that stands a reasonable chance of acceptance is for you to make temporarily reduced payments for a few months until you're back on your feet.
Chances are, if you're on the verge of losing your home, you're tapped out and unable to borrow money from any bank. However, for most of us, losing a home is apocalyptic and warrants asking a close friend or relative for a loan. It's an unsavory option, but it's better than losing your house. Work out a reasonable time horizon to pay back the lender; be honest about your ability to pay and how long it would take. Put it all in writing and make sure both parties sign the document.
5) Refinance the loan.
Find a mortgage broker that can refinance your existing loan. Interest rates are at rock-bottom levels; a refinanced loan at a lower rate would reduce your monthly payments and boost your cash flow, giving you a chance to fix your finances.
[If you're ready to buy a home or refinance, use our Mortgage Calculator to see what your monthly will be.] and interest payment
6) Sell the house.
Consider finding a trustworthy realtor to sell the house. You'll need to be realistic about the asking price, not just because the real market is shaky right now but also because you need to unload your home right away, before the bank has a chance to take it away from you. [Not all real estate agents are always in your corner. To get the scoop on what's really motivating them, read Why Your .] Isn't Always Working For You
7) Consider HAMP.
The Obama Administration’s Making Home Affordable Program (HAMP) includes opportunities to modify or refinance your mortgage to make your monthly payments more affordable. For details and to find out whether you're eligible, 1-888-995-HOPE or visit: www.makinghomeaffordable.gov
Remember, while there are many people ready to help pull you back up, you need to be wary of scam artists looking to take advantage of your situation. Be cautious of anyone who charges a fee for their foreclosure counseling services -- the HAMP program can set you up with a HUD-approved housing counselor for free. For more advice on avoiding foreclosure scams, please visit their site.
P.S. As foreclosures mount, homeowners aren't the only ones with ruined balance sheets. Read on to find out if Your Bank's Balance Sheet is Overloaded With Distressed Real Estate, and why it could turn into a serious problem.