How can I avoid foreclosure?
- Learn what the foreclosure laws are in your state. Contact your local Recorder/Register of Deeds or the Sheriff’s Department, who in most states holds the foreclosure auction, and they will be able to give you correct information regarding the time you have left to do something with your property.
- Prioritize your bills. When you are scraping to get by and having to pick and choose which bills to pay, put the mortgage at the top of the list and wait to pay the medical bill(s).
- Consider renting out a room, rooms, or the basement for extra income. I realize it’s awkward to have someone else living in your home, but if it keeps you from foreclosure, go for it.
- Borrow money. Perhaps you have the money in a 401K, or you are fortunate enough to have family or friends who can lend you the money to stop foreclosure. Carefully consider this option only after weighing all the factors involved including your home’s present market value and what you owe. If you are in a city or neighborhood where values are plummeting, do not waste your savings or retirement money if the return on your investment is negative. You are better off letting the home go into foreclosure.
- Sell the property. Sorry to be so obvious. In some situations, you can even sell to family who may let you keep living in the home. The difficulty in today’s real estate market is selling a home for at least what you owe. The avalanche of foreclosures in some neighborhoods has significantly dropped the value of your home. So you may have to negotiate with your mortgage company to do what is called a “short sale.” A “short sale” is when the two of you agree on a sales price to sell your home for less than what is owed. They will report it as a “short sale” on your credit report, but it is still far better than a foreclosure. If you do sell your home by “short sale”, make sure you contact your tax accountant. The 2007 Mortgage Forgiveness Debt Relief Act changed tax laws so sellers who do short sales on their primary residence do not have to declare the shortage as income as long as it is less than $2 million. To be safe ask your accountant how it applies to your specific situation and short sale.
- Pursue “forbearance” with your lender. Perhaps you are behind on your mortgage due to a temporary reduction in income, and you fully expect to get back on your feet. Your lender can arrange to take the amount you are behind and put it on the end of your mortgage when you pay off the loan.
- Attempt a “loan modification” with your mortgage lender. A loan modification is when the lender agrees to temporarily lower your interest rate for a set period of time to ease your financial burden. Recent government action and your lender’s motivation to have one less foreclosure make this a great option. Contact your lender directly to pursue this alternative. If they become difficult to work with, carefully consider a loan modification company only after investigating their references and fees.