How Can I avoid Foreclosure

| November 1, 2012 | 0 Comments


There is hardly anyone either directly or indirectly not affected by the foreclosure crisis. How can this pitfall be avoided? Those not in it today may be threatened tomorrow because of falling equity and staggering unemployment. There are many options but it depends on the type of loan – conventional, FHA or VA.

The conventional loan is also known as FRM or fixed rate mortgage wherein the interest rate remains the same during the entire life of the loan; it also refers to a loan that is neither insured nor guaranteed by government agency.

The FHA loan is guaranteed by the Federal Housing Administration. The loan is given by a lender that is approved by the FHA.

VA mortgage loan is guarantor is the Department of Veterans Affair.

There are certain cardinal rules to be followed to avoid foreclosure. The first thing is to accept the fact. Letters from the lender should not be ignored and contact made immediately with the Loss Mitigation Department of the lender. Your situation should be explained backed up by financial information like your earnings and expenses. It is best not to walk away immediately because it closes all doors to assistance. Simultaneously contact HUD approved counseling agencies for invaluable advice and guidance. Their services by and large are free.

There are many alternatives to foreclosure.

In Forbearance the lender might give you time to tide over your personal problem or reduce the payment during this period when you may perhaps have seen your income go down or expenses go up (like illness). All the information supported by documents will have to be submitted to the lender.

In Modification the debt may be refinanced or the term of the mortgage extended. This will help the borrower to catch up to a level that is realistic and affordable. For this you must show that you have the income to pay at the new rate.

In Partial Claim the lender could navigate the borrower to obtain a payment (one time) from the insurance fund of FHA to help you become current. To be eligible you have to be due for a minimum of 4 months but not more than 12 months. You should be able to make from now on your mortgage payments in full. When the lender files the Partial Claim, HUD pays the lender the amount required to make the mortgage current. The borrower has to give a promissory note allowing a lien to be clamped on the house until this loan is fully cleared The note does not carry interest and becomes due when the first mortgage is paid off or when the unit is sold.

In Pre-foreclosure sale or short-sale the house can be sold, with the nod from the lender, for an amount that is short of the loan due amount.

In Deed-in-lieu of foreclosure the borrower may voluntarily return the house to the lender. Although the house is lost the credit of the borrower is saved unlike what happens in a foreclosure. The borrower qualifies if all other options have been exhausted and there are no other defaulting FHA loans. Taking all things into consideration the best armor against foreclosure is to live according to your means.


Category: Home Loan

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