6 tips for avoiding foreclosure

by | Nov 12, 2019 | Real Estate

Many of us have been unable to pay a bill on time at one point or another. This happens, and hopefully, it is paid soon after that because unpaid bills can lead to real problems when they pile up. When homeowners get behind on their mortgage, foreclosure may occur.

What is foreclosure?

Foreclosure is what happens when the mortgage lender takes over ownership of the home, and the occupant must then move out. Moreover, if the property is worth less than the amount of the loan, the lender can pursue a deficiency judgment where the previous owner must also pay back the additional amount of the debt.

It is best to avoid this

A foreclosure or deficient judgment will impact a person’s credit rating for years, which makes it extremely difficult to buy another home. Tips for avoiding this financial catastrophe include:

  1. Do not avoid the problem: The further behind the borrower gets, the more likely they are to lose their home. So do not ignore a problem by throwing letters in a drawer unopened.
  2. Contact your lender: It is best to do this as soon as a problem arises. Lenders would rather not foreclose and often will try to work with the borrowers to come up with a plan to refinance or lower monthly payments.
  3. Know your rights: Read the loan documents to determine what the lender can and cannot do. The paperwork will outline the process and time frames as well as the state laws regarding foreclosure.
  4. Contact HUD: The U.S. Department of Housing and Urban Development has free or low-cost housing counselors who can help the owner resolve the issue without foreclosure.
  5. Tighten the belt: It may seem obvious to some, but be extremely careful about spending money and proactively sell any assets of value to get the mortgage up to date. It may be necessary to get a second job.
  6. Avoid scams: It is unfortunate, but some will try to prey on borrowers by promising to stop a foreclosure if the owner signs a contract, which often transfers the property to the scammer.

Working with the right people

The aforementioned HUD counselors are an excellent resource. However, attorneys specializing in bankruptcy will also be useful in determining the right course of action. Sometimes this includes keeping the house and proactively focusing on eliminating the debt.