When you miss your mortgage payments, foreclosure may occur. This is the
legal means that your mortgage company can use to repossess (take over) your
home. When this happens, you must move out of your house. If your property is
worth less than the total amount you owe on your mortgage loan, your mortgage
company or HUD could seek a deficiency judgment. If that happens, you not only
lose your home, you also would owe your mortgage company or HUD an additional
debt. Foreclosure or a deficiency judgment could seriously affect your ability
to qualify for credit in the future. So you should avoid it if all possible!
DO NOT IGNORE THE LETTERS FROM YOUR MORTGAGE COMPANY. If you are having
problems making your payments, contact your mortgage company immediately.
Explain your situation. Be prepared to provide them with financial information,
such as your monthly income and expenses. Without this information, they may not
be able to help. Stay in your home for now. You may not qualify for assistance
if you abandon your property.
Some of your options include the following:
- Special Forbearance. Your mortgage company may be able to arrange a
repayment plan based on your financial situation. Your mortgage company may even
provide for a temporary reduction or suspension of your payments. You may
qualify for this if you have recently lost your job or your source of income or
if you had an unexpected increase in living expenses. You must furnish
information to your mortgage company to show that you would be able to meet the
requirements of the new payment plan.
- Mortgage Modification. You may be able to refinance the debt and/or extend
the term of your mortgage loan. This may help you catch up by reducing the
monthly payments to a more affordable level. You may qualify if you have
recovered from a financial problem but your net income is less than it was
before the default (failure to pay).
- Partial Claim. Your mortgage company may be able to work with you to obtain
an interest-free loan from HUD to bring your mortgage current. You may qualify
if:
- your loan is at least 4 months delinquent but no more than 12 months
delinquent;
- your mortgage is not in foreclosure; and
- you are able to begin making full mortgage payments.
When your
mortgage company files a Partial Claim, HUD will pay your mortgage company the
amount necessary to bring your mortgage current. You must execute a Promissory
Note, and a Lien will be placed on your property until the Promissory Note is
paid in full. The Promissory Note is interest-free and will be due if you sell
or leave your property, or when your mortgage matures.
- Pre-foreclosure sale. This will allow you to sell your property and pay off
your mortgage loan to avoid foreclosure and damage to your credit rating. You
may qualify if:
- the "as is" appraised value is at least 70% of the amount you owe and the
sales price is 95% of the appraised value;
- the loan is at least 2 months delinquent prior to the pre- foreclosure sale
closing date; and
- you are able to sell your house within 3 to 5 months (depending on what your
mortgage company agrees to).
An additional benefit to this option is
the assistance you will receive with the Seller-paid closing costs.
- Deed-in-lieu of foreclosure. As a last resort, you may be able to
voluntarily "give back" your property to the mortgage company. This wont save
your house, but it will help your chances of getting another mortgage loan in
the future. You can qualify if:
- you are in default and dont qualify for any of the other options;
- your attempts at selling the house before foreclosure were unsuccessful; and
- you dont have another mortgage in default.
A housing counseling agency can help you determine which, if any, of these
options may meet your needs. You should also discuss the situation with your
mortgage company.
One last thing, beware of scams! Solutions that sound too simple or too good
to be true usually are. If youre selling your home without professional
guidance, beware of buyers who try to rush you through the process.
Unfortunately, there are people who may try to take advantage of your financial
difficulty. Be especially alert to the following:
- Equity skimming. In this type of scam, a "buyer" approaches you, offering to
get you out of financial trouble by promising to pay off your mortgage or give
you a sum of money when the property is sold. The "buyer" may suggest that you
move out quickly and deed the property to him or her. The "buyer" then collects
rent for a time, does not make any mortgage payments, and allows the mortgage
company to foreclose. Remember that signing over your deed to someone else does
not necessarily relieve you of your obligation on your loan.
- Phony counseling agencies. Some groups calling themselves "counseling
agencies" may approach you and offer to perform certain services for a fee.
These could well be services you could do for yourself, for free, such as
negotiating a new payment plan with your mortgage company, or pursuing a
pre-foreclosure sale. If you have any doubt about paying for such services call
HUD-approved housing counseling agency. Do this before you pay anyone or sign
anything.
Here are several precautions that should help you avoid being "taken" by scam
artist:
- Dont sign any papers you dont fully understand.
- Make sure you get all "promises" in writing.
- Beware of any loan assumption where you are not formally released from
liability for your mortgage debt and contracts of sale.
- Check with a lawyer or your mortgage company before entering into any deal
involving your home.
- If youre selling the house yourself to avoid foreclosure, check to see if
there are any complaints against the prospective buyer. You can contact your
states Attorney General, the State Real Estate Commission, or the local
District Attorneys Consumer Fraud Unit for this type of information.
