Foreclosure is easier to prevent than it is to stop by being wise with your choices about how and why you borrow money and from whom. If you’re in foreclosure, you will always fare better by talking to the bank, because banks don’t want houses, they want money!
First things first: what causes foreclosure in the first place? In the time I worked for a mortgage foreclosure attorney I identified two main areas of foreclosure: loss of spouse and bad loans.
Spouses can be lost through death or divorce. If the wage-earner dies it is often difficult to make the payments. In a divorce it is very common for angry spouses to let the house go into foreclosure out of spite. Life being what it is these are not situations that are easy to predict or prevent.
Unscrupulous mortgage brokers that promise you the world cause more heartache than you may realize. Here’s a tip: if no bank you have ever heard of will consider you for a loan, you probably can’t afford the payments. Take a step back, rebuild your credit and pay down your debt, and wait before you buy.
But you’re beyond that point and want to save your home. What do you do?
First of all, talk to the bank! The last thing they want is your house . . . they have to maintain it until they can sell it, hire a broker to list it, and in many cases repair thousands of dollars in damages that tend to show up just before the prior owners leave. They would much rather work out a plan with you to get your money instead of your house, no matter how far along in the process you are. However, the longer you wait the more it is going to cost, so act fast!
Contacting the bank as soon as you know you’re having trouble shows good faith. Your mortgage payment is the last thing you want to be late, so give them a call. They often will work out a payment arrangement that will bring the loan current in a few months, called a reinstatement agreement.
If you just can’t come up with the money under any circumstances, banks will sometimes negotiate a “short payoff” (taking less than what is owed and walking away) if you find someone interested in buying the house from you. There are plenty of investors that are willing to pay less than top dollar for your home and under the right circumstances they may be doing you a favor.
Bankruptcy is a legitimate strategy that will delay, but not prevent, foreclosure. The bank’s interest in your home will eventually have to be satisfied. Use bankruptcy if you’re trying to resolve the issue and need more time, not just to stall if you have no plan. That only clogs the court system and increases the costs of borrowing for everybody.
It is best to prevent foreclosure altogether, even if it means not buying that house or moving early. Failing that, communicate with your bank and consider finding an interested buyer, keeping bankruptcy as a strategy if you need more time to fix the problem. No matter how bad off you are, don’t let that foreclosure get completed, because it is a black mark on your credit that lasts a long, long time.