The COVID pandemic was rough on the economy. 2020 saw one of the worst market crashes since the housing bubble burst in 2008. And we still don’t know the long-term effects it will have. Things seem to be looking up in 2021, but that doesn’t mean much if you’ve lost your job and still haven’t been able to find a new one.
A lot of people are struggling to make their mortgage payments and are left wondering – how to avoid foreclosure? While this is not a situation you want to be in, it’s not the end. There is always a way out.
Of course, the best way to avoid foreclosure is to make your payments on time. In theory, it’s as simple as that. But you wouldn’t be reading this if it were that easy in practice. So here are 10 steps you can take to avoid foreclosure.
One of the worst things you can do when you can’t pay your monthly installments is to try and hide from your lenders. You get nothing by not answering your phone or checking your mail. The foreclosure can still happen, regardless of whether the lender can get in contact with you or not.
You shouldn’t hide from your lenders, but you should be very critical of any letters or calls you receive from anyone other than your lender. As soon as you start missing mortgage payments, your name goes on lists that for-profit companies buy to prey on those in financial distress.
They may offer to negotiate mortgage relief or loan modifications, provide attorney support, and a whole host of other ‘services’. The fees these companies charge are high and rarely (if ever) do you any good. Your money is better spent going towards your mortgage payments.
You should do the exact opposite of avoiding your lenders – you should contact them. They can provide you with valuable information regarding foreclosure prevention options. We’re not saying the lenders have your best interest at heart.
But, in this case, your interests align – they don’t want to have to go through the foreclosure process almost as much as you don’t. They will usually lose money on foreclosure and then have to sell the property after the process is over. For them, it’s best if you can get back on track and continue making your payments.
The lenders will provide multiple options, depending on your situation. They may offer to reduce your monthly installments or even suspend payments for a certain period of time. You will still owe them the same amount, you just won’t have to pay it right away.
This can help you weather the storm and avoid foreclosure on your home for a bit. You may be allowed to modify the loan, like getting lower interest rates or extending the loan term, which will reduce your monthly payments.
You could also be provided with the option of refinancing your loan if you have good credit. This allows you to take out a new loan to pay off your existing debt. Refinancing the loan usually means you will end up paying more in the long run, but it can avoid foreclosure in the short term.
The short of it is that lenders want to prevent foreclosure, so they will provide you with multiple options to avoid it. But you need to get in touch with them first. And you don’t need for-profit companies to make the call for you.
Knowledge is your friend if you want to avoid foreclosure. The foreclosure process is not the same in every state. You may have more or less time to prevent it given the local laws. For instance, in New York, foreclosure is usually done through the courts.
Conversely, foreclosure in California is usually non-judicial and it won’t go to court unless you sue your lenders. Knowing what laws apply in your state can help you delay the process until you are in a better position to fight it.
Foreclosure always comes down to you not being able to make payments. Once you know what your options are, you can attempt to modify your spending to avoid it. You should do your best to cut your personal spending as much as you can. Yes, that means you will have to count every penny you spend, but it can buy you a few months.
If you think your financial situation may stabilize in a few months, you should consider selling some secondary assets. You can sell your second car, some jewelry, or an antique you have to take care of the outstanding debt. This can avoid foreclosure for a few months, until you are able to start making regular payments.
You should proactively seek advice from people who specialize in foreclosure prevention. You can find HUD-approved counselors in each state. If you have a VA loan, you can get assistance from the Department of Veteran Affairs.
These people can explain things that might not be clear enough and help you sort through your options. However, you should only seek federal- or state-approved counselors. Once again, private for-profit companies are unlikely to help.
If worse comes to worst, you can file for bankruptcy to delay or avoid foreclosure. But this should never be your first option. You will still need to figure out a way to make payments if you want to keep your home. And your credit will take a huge hit, making it extremely difficult to take out any other loan in the foreseeable future.
You should see if you can refinance your mortgage to get a lower interest rate. In essence, you are exchanging your old mortgage for a new one, but on better terms. There are a couple of reasons why you should try this – when you purchased your home, the interest rates may have been high or you purchased with an adjustable rate.
Since the time you purchased your home, the interest rates may have gone down. If you manage to refinance your mortgage at a lower rate, your monthly payments will go down. In turn, this could mean that you’re able to make your payments and avoid foreclosure.
Finally, you always have the option of selling your home. If it has become a financial burden and you see no way out, it might be best to start anew. You can find investors who buy homes that are under threat of foreclosure. While this is probably not something you want, starting over with some money in your pockets is not the worst thing that can happen.
When your home is under threat of foreclosure, it can seem like the world is against you. You may feel like you just want to hide or get away from it all. Don’t. Be methodical. Be proactive. There are options available to you and you can probably avoid foreclosure if you exhaust them all.