Ways To Stop Foreclosure

One of the best ways to stop foreclosure is to take action before the mortgage lender does. The possibility of losing one's home is a tremendous fear for most homeowners. A house is seldom just a building on a piece of ground. Emotions and memories reside right along with the family inside the rooms and out on the lawn. People work hard to save for the down payment, get sick at their stomachs after signing a contract, turn moving-in day into a festive event, and then live one day at a time in the refuge and shelter of a place that somehow takes on the family's personality. When the month comes that the mortgage can't be paid, emotions and even panic can overwhelm clear judgment and corrective action. Scripture makes this promise: "Blessed are they that keep judgment, and he that doeth righteousness at all times" (Psalm 106:3). Though the circumstances may look hopeless, this is exactly the time when the homeowners need to look at the financial situation causing the difficulty and begin considering the available options. There are definite ways to stop foreclosure and the homeowner needs to have some knowledge of them.

In recent months, people who contracted for subprime mortgages have found themselves in dire situations. Many opted for a subprime mortgage, with its higher interest rate and more expensive fees, because they could not qualify for a prime mortgage with more favorable rates and terms. Too many of these homeowners are now desperately searching for ways to stop foreclosure on their properties. As the crisis has reached epidemic proportions, affecting property values throughout the country, it's now clear that subprime lenders approved an amazing number of loans to borrowers with poor credit histories and not enough income to support rising mortgage payments. Locked into adjustable rate mortgages (ARMs), these homeowners were shocked at how much a couple of percentage points could add to the monthly payment. Not only that, but when they read the fine print of the contract, the homeowners learned that a hefty prepayment penalty made refinancing or selling the home an expensive process. Adding insult to injury, the homeowners had borrowed such a high percentage of the home's appraised value that any equity was practically nonexistent. As housing prices dropped, many people discovered that they owed more for the house than its worth. At first, banks seemed reluctant to help with these situations, but the numbers of affected people reached practically epidemic proportions and neighborhood property values began to plummet, the industry is more interested in helping homeowners find ways to stop foreclosure proceedings.

Mortgage holders send out a notice of default when payments are missed and before starting the foreclosure process. The notices should not be ignored, no matter how frightening or embarrassing it is to receive them. By contacting the mortgage holder, the homeowner may negotiate ways to stop foreclosure proceedings. The mortgage holder may agree to a repayment plan that spreads arrearage and legal fees over a period of time. For this option to work, the homeowner may need to pay at least half the arrearage and legal fees upfront and then agree to a payment schedule that pays off the balance in about six months. For example, if the delinquency totals $8,000, the lender may agree to a $4,000 payment with the remaining $4,000 spread equally over the next six months. This payment will be in addition to the regular house payment. If the homeowner has an ARM, the lender may agree to a temporary modification of the existing terms. For example, the interest rate may be temporarily reduced. Another option, for both an ARM and a conventional loan, is to extend the amortization schedule. This means that the delinquency is attached to the end of the loan. Perhaps the homeowners planned a mortgage-burning party in 25 years and 3 months. If they negotiate an extended amortization schedule with the lender, that party will be postponed as long as it takes to make up the delinquency. A repayment plan and changes in terms are just two ways to stop foreclosure, but will only work with a cooperative lender.

If the homeowner is unsuccessful in negotiating a settlement with the lender, he or she may need to consider contracting with a professional loss mitigation negotiation. This person is specially trained to assist in these types of situation and may be able to negotiate an agreement with more favorable terms than the homeowner could get on his or her own. Other ways to stop foreclosure include a deed in lieu of foreclosure and having a short sale. In the former, the lender agrees to take back the property instead of foreclosing. In almost every case, any deficiency between the selling price and the outstanding amount of the loan will need to be made up by the former homeowner. For example, the total amount of the original loan plus arrearages and legal fees may equal $175,000. If the lender sells the property for $165,000, the individual still owes $10,000. In a short sale, the house is sold and the lender agrees to accept the purchase price. In negotiating this type of arrangement, the homeowners need to read all the fine print of the contract to ensure they are not liable for any deficiency. Using the same example, if the lender agreed to a short sale and did not include language in the contract holding the homeowners responsible for any deficiency, then the individuals are free of any further obligation. Perhaps one of the worst ways to stop foreclosure is to apply for bankruptcy protection. Experts advise bankruptcy as only a last resort. However, if the homeowners have no other choice due to overwhelming debt, they are advised to seek competent legal counsel before filing a petition with the courts.

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