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How to Avoid Foreclosure
This booklet explains how property owners can avoid
losing their homes because of late payments.
|Q: What happens when I miss my mortgage payments?
Foreclosure may occur. It is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. Additionally, if your property is worth less than the total amount you owe on your mortgage loan, you could be pursued by your lender or the U.S. Department of Housing and Urban Development (HUD) for a deficiency judgment. If that happens, you not only lose your home, but there also would be an additional debt that you would owe to your lender or to HUD.
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!
Q: What should I do?
Q: What are my alternatives?
Your options include the following:
Special Forbearance. Your lender may be able to arrange a repayment plan which would be based upon your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced an involuntary reduction in income or an increase in living expenses. You must have also furnished information to your lender 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 will help you catch up by possibly 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 lender may be able to work with you to obtain an interest- free loan from HUD to bring your mortgage current. You may qualify if: 1)your loan is at least 4 months delinquent, and no more than 12 months delinquent; 2)your mortgage is not in foreclosure; and 3) you are able to begin making full mortgage payments. When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender 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:
Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it will help your chances of getting another mortgage loan in the future. You can qualify if:
Q: How do I know if I qualify for any of these alternatives?
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 lender.
Q: Should I be aware of anything else?
Yes. Beware of scams! Solutions that sound to simple or too good to be true usually are. If you're 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. This type of scam involves a "buyer" approaching you and 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 lender 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 lender, 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.
Q: Are there any precautions I can take?
Here are several precautions that should help you avoid being "taken" by scam artist:
Q: What are the main points I should remember?
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