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How to Avoid Foreclosure and Stay in Your Home

avoid-foreclosureIf you think you might have to face a foreclosure in the near future, there are things that you can do to avoid foreclosure so you can stay in your home. Clearly, losing your home would be a nightmare, so you want to avoid foreclosure however possible. But unless you are a lawyer, you probably don’t know much about your rights and what steps you can take to keep your home. Here are a few options for you consider when deciding how to avoid foreclosure, along with an explanation of the pros and cons of each one.

Avoid Foreclosure by Reinstating Your Mortgage

Reinstating your mortgage can be very expensive, but if you have enough money, you can do it to avoid foreclosure. When you reinstate your mortgage, you will have to make up all the missed payments plus fees and interest. This is ideal if you have just recovered from a short-term financial hardship and you are now able to repay the missed payments. After being given the notice of foreclosure, you usually have a couple months to reinstate your loan. Consult with a lawyer to find out how your state handles this process, when the deadlines are, and whether it’s a good option for you.

If you let the deadline pass without reinstating your mortgage, your lender can accelerate your loan. This means everything will be due immediately. However, even if the lender tries to sell your home, you usually have a couple days up until the actual sale to reinstate your loan. You also could consider inquiring about a Mortgage Reinstatement Assistance Program. These programs can help you if you are going through financial hardship and at risk of losing your home. In general, mortgage reinstatement may not be an option for many people, but it can be the easiest way to avoid foreclosure.

If you have enough money to reinstate your mortgage, you also have some bargaining power to negotiate with your lender. Always remember that it is a hassle for lenders to foreclose homes. They might want to seek other available options before having to foreclose on your home. Foreclosure if not an ideal option for a bank because there is a lot of legal work involved, and they still face the risk of falling house prices and a harsh real estate market. Given the conditions at a certain time period, you may have the advantage in a negotiation. So you should also consider negotiating a workout before you decide to reinstate your mortgage.

Negotiate A Workout To Avoid Foreclosure

You should always explore the possibility of negotiating a workout with your lender to avoid foreclosure. There are free foreclosure services that can help you out, or you can consult an attorney and have legal representation throughout the process. You should be aware all your options and legal rights before getting in contact with your lender. If your loan is insured by government agencies like Freddie Mac, Fannie Mae, the Federal Housing Administration, HUD, the VA, or the Rural Housing Service, there may be more alternatives and workout opportunities available to you.

Before negotiating a workout, it’s a good idea to meet with a HUD-approved housing counselor and ask about the possibility of the following things in order to get the best workout strategy possible:

  • a forbearance or temporary relief from having to make your monthly payments
  • a reasonable plan to make up missed payments
  • lower interest rates
  • lower monthly payments
  • a reduction on the principal of your loan

Make sure to free up as much money as you can before negotiating with the lender in order to give yourself a better chance of getting a favorable workout. Depleting your savings and going deeper into debt is not a good idea if you won’t be able to make the payments in the future. Instead, find ways to cut down your expenses of consider options earn extra income, such as renting a room on AirBnB.

Make sure you educate yourself and be prepared before attempting to negotiate a workout. You want to have a reasonable goal in mind before negotiating with creditors. The more knowledgeable you are, the better your chances of avoiding foreclosure. It can be especially helpful to work with an experienced lawyer to create your workout strategy.

Refinance to Avoid Foreclosure

Refinancing your loan can be difficult when facing a foreclosure because few banks will be willing to take on the risk. To refinance, you will need equity in your house, good credit, and the value curve of the community where your home is should be trending upward. Usually this will not be the case because foreclosures are most common in poor housing markets when your house is underwater. If refinancing is a possibility, you will be able to reduce your monthly payments to a much more sustainable level and avoid foreclosure.

Another way to refinance your loan is by qualifying under the Home Affordable Refinance Program. This is possible if your mortgage is through Fannie Mae or Freddie Mac. If you feel that refinancing is an option based on the circumstances you are in, talk to a lawyer and find out about your state’s redemption rules. Your state might allow you to refinance even after a foreclosure sale.

Arrange A Short Sale To Avoid Foreclosure

A short sale of your home can be a way to avoid foreclosure if your lender agrees to it, however you will not be able to stay in your home. A short sale is only possible if you don’t have a second or third mortgage on your home. Second and third mortgage lenders will not get paid after the short sale, so they will not approve the short sale. You need all your lenders to agree to the short sale for it to be possible.

If your primary lender agrees to a short sale, be sure that they release you from repaying the deficiency you owed in writing. You do not want to be sued for a deficiency after a short sale. It is always a good idea to work with a lawyer when you go through a short sale to avoid foreclosure.

Take Your Case To Court To Avoid Foreclosure

If you have reason to believe your lender did not follow state laws during the lending or foreclosure process, you can fight the foreclosure in court. You should also consider going to court if your lender violated the terms of your mortgage loan agreement at any time. Talk to a lawyer and have your mortgage agreement reviewed if you suspect that your lender may have acted illegally or unethically.

If you are successful in court, you can delay or stop the foreclosure process and you will have a better chance of keeping your home. Since most judges are strict about enforcing all legal obligations during the foreclosure process, lenders must be careful about the steps they take. High scrutiny of lenders in foreclosure cases can help work to your advantage. If your lender is unable to produce the necessary documents in court or prove that all the actions that were taken were legal, you will have a good chance at winning your case.

Conclusion

If your home is underwater and you are at risk of losing it, you need to make yourself aware of all the possible options to avoid foreclosure. Facing a potential foreclosure is a very painful situation to address, but don’t just sit back and let it happen. Take action early when you have missed a mortgage payment or you are experiencing financial hardship of any kind. Get informed about all the alternatives that might be available to you, and consider finding a lawyer to help advise you through the process. You do not want to sit on your rights only to find out foreclosure is the only option left.