With housing at the epicenter of the financial earthquake that has rocked our nation, more and more beleaguered homeowners are growing progressively concerned about their homes. There are long-time homeowners who are now facing foreclosure and who now believe that declaring bankruptcy will save them from losing their homes. If I were in their shoes, I wouldn’t be going down without a fight.
When bankruptcy laws were reviewed in 2005 at the prodding of credit cards companies, it was determined that people who opt for Chapter 13 (in most cases) would be able to restructure all of their debts — except for the house that they live in. As things stand now, consumers aren’t seeing any support from the government as far as legislation that can be applied towards managing or controlling the hike in their mortgage terms. Many homeowners feel that they have limited options when their house payments begin to ratchet upwards, but hopefully, there are some things that they can do to mitigate the challenges ahead.
How Can I Avoid Foreclosure? Where To Get Help
If you’re having problems keeping up with your home payments, you may be asking the painful question: should I consider foreclosure? After all, it has been reported by RealtyTrac, a site that serves as a marketplace for properties in foreclosure, that several million properties have been flagged for foreclosure in the past few years. That of course doesn’t include the millions of homeowners who are struggling to make their mortgage payment and who just might default this year. It’s unfortunate that some banks and financial institutions refuse to negotiate with mortgage holders, which to me, does not seem to make sense considering that a lower payment will always be better than having to sell a property at a huge loss.
While there is such a thing as Obama’s foreclosure bailout plan, the requirements needed to qualify for help are pretty strict. So it’s imperative for families who have trouble making mortgage payments to try to delay foreclosure as much as possible. Hang on as long as you can and you might eventually squeak by with eventual government assistance. So how can you stave off the threat of foreclosure? One important place to start is by managing one’s debt. It’s best to work out your own debt reduction plan, but if you need any kind of help in this area, here are a few resources to consider (some services here are free and some are not):
- Home Foreclosure Fighter for loan modification services
- Lower My Bills for home refinancing, debt consolidation and debt management
- for mortgage refinancing and personal loan needs
- National Foundation For Credit Counseling for credit counseling
- Debtor’s Anonymous for providing support and fellowship among recovering debtors
Always make a careful assessment before joining any community or subscribing to any service.
How To Keep Your House In Troubled Times
Also, the Department of Housing and Urban Development (HUD) advises the following:
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Weigh your options and don’t ignore the problem. Some owners believe that abandoning the house is the best solution because they have no equity. Depending on your situation, “walking away” may or may not be the way to go.
If you bought a $300,000 house with $1,000 monthly payments and you are now paying $3,000 per month because you signed an ARM (Adjustable Rate Mortgage) contract, and your property is now worth less than $200,000, there is a strong temptation to cut your losses. Unfortunately, going into foreclosure may make sense in this case, since this kind of situation isn’t something the banks are typically sympathetic to. No way the bank will let you go back to paying the original amount.
However, if you signed a fixed interest contract and are facing the possibility of foreclosure due to other factors, then hang on as long as possible. Congress has approved the release of the other $350 billion of the mortgage bailout package, of which $100 billion will be used to help millions of homeowners avoid foreclosure. Cut your costs to the bone, get a second job, get a loan from friends and relatives, do whatever you can and more to continue paying your mortgage. Relief from the federal government should be available before summer so hang in there! - Contact your lender. There are some banks which will lend a favorable ear to your distress. After all, they’re not exactly in the real estate business; I’d therefore expect the smarter financial institutions to prefer to make deals with responsible homeowners. Keep the communication lines open and make sure you know who your primary lender is, as mortgages have been sold, resold and repackaged to whoever was willing to buy them.
- Evaluate your resources on foreclosure prevention. You may be able to find information about foreclosure prevention (also called loss mitigation) online at the Federal Housing Administration web site. For instance, it shows the program called Hope Now, an alliance among mortgage market participants that offers solutions to struggling homeowners.
- Contact a HUD-approved housing counselor. They will help you organize your finances (free or very low cost), and help you talk to your lender. If your mortgage contract seems written in a foreign language, he or she will help you decipher the conditions so you may negotiate with a better understanding of your rights.
- Set expectations. Not all homeowners may find solace in a housing assistance program. Unfortunately, there may be some situations that may not qualify for assistance, so this is something you’d need to investigate if you’ve decided to go down this path. While I would do whatever it takes to try to escape foreclosure, I’d look at possible solutions with a healthy dose of realism: hope for the best but prepare for the worst!
- Avoid bankruptcy if you can. It may be a tough hill to climb, but people have escaped the clutches of bankruptcy and foreclosure through strategy and sheer will. Check out this piece we published on how to avoid bankruptcy and stay solvent.
- Check out Fannie Mae’s KnowYourOptions.com site. You can get additional, helpful foreclosure information through the site called KnowYourOptions.com. Before doing anything radical, it’s good to know what kind of assistance is available out there, or what you can do to stave off foreclosure.
Above all, do not despair, no matter how bad the situation looks. Remember that you are living in one of the most prosperous countries in the world, with a government that does its best to help its citizens (some of you may disagree, but it’s really all relative). It could be a lot worse; imagine living in a third world nation where millions of citizens receive no help whatsoever, or in some other areas of the world where millions continue to regret the Communist era. If you live in this country, what you do have is hope — that there will be better times ahead and that things will turn up eventually.
Created: May 21, 2009; Updated: May 2, 2011
Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 17 comments… read them below or add one }
I think a foreclosure is appropriate in some circumstances but bankruptcy is not. It was originally set up as a way to encourage businesses to take risks, now it’s merely an escape for people that lived beyond their means. Something like 97% of all bankruptcies are personal, with 3% being business.
Thanks for the resources here, I’m glad I don’t need them.
I agree with you Weakonomist. My mother filed for bankruptcy and I think it was unnecessary. Bankruptcy only puts you into a deeper hole. Her debt wasn’t even that bad. All they did was consolidate her bills, but it still didn’t help the situation; it only puts you into debt even longer than necessary. I agree, some people do live beyond their means, but in some cases, they don’t. When you have loan sharks plying you with interest rates that will cause you to never be able to pay off your loan…..come on now….it’s set up for you to fail.
Thank You for summarizing. Your example of the Option-Arm is key to my situation. It’s unfortunate that I fell for this trap with a large down payment and struggled to keep up with payments for two and a half years. I have my mortgage auditor to thank for explaining and pointing out to me that I was only initially qualified to borrow $85,000. I’m being sarcastic here of course, so whether he was being a liar or being irresponsible — whatever the case may be — it’s almost over now, N.O.D. should be on it’s way. The loan mods are for the fixed cases who had a trusting lender to begin with and not some thief looking to profit from the High Spread Premium Yield.
This all reminds me of FORD. I had a 2001 F-150 that burned to the ground from an electrical fire after my cruise control was fixed in 2007. I researched and found so many others who suffered the same type of fate at ConsumerAffairs.com/ Ford Fires. I lost my small claims case due to lack of vehicle maintenance or a piece of debris that ended up in my car. Regardless, it will always be the consumer’s fault when files of mass fraud or deception are uncovered.
All I want now is to rent a home, own a Toyota, and to never trust anyone or convince myself we have laws that will protect us.
Since I don’t live in the U.S., I’m not sure that I fully understand what is going on. I understand that a lot of people are struggling to make their payments but what I don’t get is WHY… Why are SO many people now in a situation where they can’t pay their bills? I can’t imagine that they have all lost their jobs?
All explanations would be appreciated. Thanks.
My uncle is in foreclosure. Actually he walked away because he lost his job. He was able to get another job, in another state. He tried to sell the house but he owed more than the house was worth, so eventually, he decided it wasn’t worth worrying about and mailed in the keys.
The harsh reality of all of this is still the fact that there are thousands of people out there facing the very real threat of losing their homes, with nobody there to step up and fill these homes again. This is a double whammy which cannot be allowed to happen. The administration will have to start dispensing with red tape and start to be more pro-active if disaster is to be averted.
Many sellers in our area are going through the short sale process whereby the lender writes down their mortgage. What many distressed home owners don’t understand is that the mortgage holder may write the mortgage down to consummate a sale thereby eliminating the deed of trust so the new owner can close without the encumbrance; however, what the former owner may not understand is that the promissory note which he / she signed is still in effect. The result is that the former seller is still on the hook for the difference.
This is really good advice. As a college professor and journalist specializing in teaching teens and college students about money management, I tend to look at proactive problem solving with a lot of admiration. There are some solid steps here.
For whatever it’s worth, on my blog, AskAnne (giveme20.com/blog) I’ve posted a 4 part series on managing money in crisis, when someone at home loses a job and everything is suddenly at risk.
Curious what you’d think about it.
–Anne
My wife and I fell into this category. We had good jobs, paid our bills, enjoyed life. In 2007 we adopted two girls (sisters). We spent $25,000 on the adoption and getting them everything that they needed. Then comes 2008. Both of us lost our jobs. My wife is still unable to find work. I had a background in insurance so i went into business for myself as a health insurance broker. As time went on, we found ourselves looking at foreclosure. We were barely able to pay our expenses, and now we have 2 young children depending on us. When I finally called our mortgage company, we were 2 1/2 months behind on our mortgage. I spent an hour on the phone with a councilor from the mortgage company and when we were finished, I had my monthly payment lowered from 1207.00 a month to 341.00 a month for the next 5 years. The mortgage company does not want your home. They will work with you if you just call them. Let me know if you need help.
I agree 100%.
Homeowners should do whatever they can to stop foreclosure and avoid giving up their home and stay away from bankruptcy until it is absolutely forced upon them.
Foreclosure should never be an option when there are so many other viable solutions.
If you are already late on the payments, the banks will be more likely to talk to you.
1. Create a list of your expenses in a spreadsheet. (They want the work done for them.)
2. Gather copies of bills, proof of income and bank statements.
3. Write your hardship letter (no more than 2 pages); you’ll need to hit keys points.
4. Be prepared to be on the phone 1-2 hours. Best time to call is first thing in the morning or after 2.
It can be a long hard road to go down, but it’s much easier with a step-by-step plan. I’d suggest reading up on improving your chances for a short sale, loan modification or workout plan.
Because you can stop foreclosure and salvage your credit.
Avoid a foreclosure and save your credit. Use a qualified, experienced short sale specialist and be proactive. You’ll be happy you did.
This is a very well written piece which explained the issues behind foreclosure as well as other options! The other key element is to be very organized and to keep detailed records during the entire process.
I thought I heard on the news there was some $200 million available to homeowners like me for assistance with paying mortgages for up to six months. If so, how do I apply for that?
Don’t file bk. How many of you commenters are attorneys? have you ever heard of chp 7 bankruptcy? Look it up. Have you ever had creditors calling you 3 times a day? It is not fun. Don’t let a lender foreclose on you. A short sale is much better.
If you are losing your home in the Sacramento area, then go to realestateinvestorgordon.com or shortsalesincitrusheights.com to get help on stopping the foreclosure.
Great info that people need and want! Many people forget to put in effort to save their homes from foreclosure. Also, NACA is a great organization for helping homeowners as well.
My wife and I checked with our lender and they actually gave us some major bargaining room. I forget the terms that they used, but they are basically easing up on our payment schedule. I suppose, in some cases, the lender would rather have your payment at any point, rather than right now with all sorts of bureaucracy. Thanks for this post.