The housing market may be slowly improving, but based on the recent increase in home repossessions, there are still a lot of troubled mortgages to clean up before a full-blown housing recovery kicks in. According to RealtyTrac, bank repossessions in January 2015 rose 55% from the previous month.
This surge in bank foreclosures raised overall foreclosure filings to 5% over the previous month (default notices and scheduled auctions make up the remainder of filings). The surge was not unexpected; RealtyTrac predicted the change as part of an early 2015 “spring cleaning.”
Meanwhile, if you are in danger of being “spring cleaned” out of your home, what steps can you take? The worst thing that you can do is to ignore the problem. It is important to be proactive at increasing your chances of keeping your home. Consider these suggestions from housing experts.
- Review Your Budget – If you are nearing foreclosure, mortgage payments must be your first priority. Check all of your expenses to see what can be cut, so that you can prioritize saving your home.
- Seek Counseling – The Department of Housing and Urban Development (HUD) has a toll-free number (800-569-4287) to help you find free advice and assistance from HUD-approved counseling services.
Unfortunately, there are multiple companies that will offer to help you, but that may not have your best interests in mind. Scam artists may claim to stop the foreclosure and offer to intercede on your behalf, upon signing a document that effectively transfers your home’s title to the scammer.
Other legitimate companies may offer to negotiate with your lender on your behalf for a fee, but provide nothing that you could not do yourself for free. Be very cautions before signing away rights or paying for foreclosure prevention services.
- Negotiate with Lender – Lenders do not want your house; they want your money. It is a headache for them to attempt to recoup money through foreclosure. They would far rather work with you.
Approach your lender with a reasonable proposal and explanation. For example, they may be open to a forbearance (short-term modification) if you show that you can make up the difference within the agreed-upon time with an upcoming cash infusion – for example, an expected tax refund. You may also attempt to lengthen your loan term to lower your short-term payments in exchange for greater total interest payments.
Negotiate as quickly as possible, because once you have missed several payments, it may be too late. If you ignore letters from your lender, they will rightfully assume that they should cut their losses and foreclose. Failure to open your mail is not a viable excuse.
- Consider Government Assistance – You may qualify for the Home Affordable Modification Program (HAMP), which was created to help homeowners in your position with refinancing. The program was set to expire but has been renewed through 2015. Similar programs include Principal Reduction Alternatives and FHA Special Forbearances. Check the HUD website for details.
- Sell the Home – You can try to sell your home either by yourself or through a short sale approved by the lender, where the lender agrees to accept less than the home is worth to avoid the foreclosure process. This is by no means straightforward. Seek advice from experts in real estate short sales before pursuing this path.
- Declare Bankruptcy – Declaring personal bankruptcy immediately stops the foreclosure process until the bankruptcy proceedings are complete or your lender gets a court’s permission to continue. Obviously, bankruptcy has other downsides and should be low on your choice of options – but it may be the only reasonable way to save your home.
If nothing can help your situation, consider a deed in lieu of foreclosure. In essence, you are handing the deed to your house over to the bank in exchange for cancelling the debt. The only advantage here is to avoid the foreclosure being reported to the credit agencies, which makes your recovery a more difficult process.
By the time that you show up in the RealtyTrac survey, it is too late. Monitor the status of your mortgage regularly, and be pre-emptive if there is trouble looming. Otherwise, you risk being “spring cleaned” straight out to the curb.