Take Action to Avoid Foreclosure
Since the U.S housing bubble burst in 2005, a wave of home foreclosures has crashed over the nation. The number of people who lost their homes to foreclosure in the years since then has reached unprecedented levels. While the economy shows signs of improvement, many homeowners in Kentucky and across the U.S. are struggling to make mortgage payments and are worried that they might lose their homes. Many feel like they have no options, but there are steps people can take to prevent foreclosure.
Getting Rid of the House
If a homeowner decides that he or she is not able to keep the house, it is unwise to just let the lender foreclose on the mortgage. Foreclosures stay on a person’s credit report for up to seven years, and a person may not qualify for a Fannie Mae mortgage for seven years after foreclosure as well.
One option that a homeowner may consider is a short sale, wherein the homeowner negotiates with the mortgage lender to let the homeowner sell the house for less than what the owner owes on the mortgage. If a homeowner cannot find a buyer, or the lender will not agree to the short sale, the homeowner may offer a deed-in-lieu of foreclosure to the lender, giving the lender the deed to the property in exchange for cancelling the mortgage.
Both short sales and deeds-in-lieu affect a person’s credit, but not as severely as foreclosure. People choosing these options need to be aware of the potential tax implications of these actions. Cancelled debt can be taxable in some instances. People also need to know whether the lender is cancelling any remaining balance of the debt when choosing a short sale or deed-in-lieu. Simply because your home lender agrees to let the property sell for less than the debt balance does not automatically mean they have forgiven your obligation to make up the difference.
Keeping the House
Those looking to keep their homes and avoid foreclosure first need to assess their financial situations. Having a realistic understanding of where money goes gives a person a way to determine where he or she can cut spending and an accurate idea of what he or she really can afford for a monthly mortgage payment.
Once a person knows what they can afford, approaching the lender to try to modify the mortgage, such as lowering the interest rate or increasing the payment period so the monthly payments are lower, is one option. A person should also investigate state and federal programs that offer financial assistance to homeowners facing foreclosure due to job loss.
People may also consider filing bankruptcy to eliminate overwhelming unsecured debt. Bankruptcy can also help a person save his or her home from foreclosure because eliminating your payments on unsecured debt may enable you to afford making the monthly mortgage payment on your home. If you file a chapter 13 bankruptcy you are given a period of time from 3 years to 5 years to catch up on all your late payments on your mortgage through a court approved plan. The filing of the case automatically stops all debt-collection actions against the person, including pending foreclosure proceedings and wage garnishments.
Words of Advice on Loan Modification Programs
If you apply for a home loan modification make sure you:
- Keep a copy of everything you send in to the lender.
- Make an itemized list of what you are sending in. Send in a copy of the list and keep a copy of the list for your records. For example: Dear Bank of America, enclosed is my package of materials to be considered for my home loan modification application. Included are the following items. [LIST OUT EVERY ITEM INCLUDED IN THE MAILING].
- SEND ALL RECORDS AND APPLICATION MATERIALS BY CERTIFIED MAIL RETURN RECEIPT REQUESTED. This way someone has to sign for the items sent and cannot legitimately say you never sent the items or that you sent them beyond a deadline. You will get a receipt back from the post office showing who signed for it and when. Keep this for your records.
- You may be told by phone to stop making your mortgage payments. UNLESS THEY PUT THAT IN WRITING FOR YOU, DO NOT STOP MAKING YOUR PAYMENTS REGARDLESS OF WHAT THEY TOLD YOU ON THE PHONE. Your failure to make payments will be held against you and will make digging out of the hole harder and more expensive later on if they deny your loan modification application.
Consult an Attorney
Facing foreclosure can be an overwhelming experience. Those who fear losing their homes should consult with an experienced bankruptcy attorney who can discuss their situations with them and advise them of their options.