If you’re having financial trouble, contact your mortgage lender at once! InCharge Debt Solutions and a variety of government-sponsored programs are available to assist you in keeping your home- and your good credit score.
Upon completing this section of the course, you will have knowledge of steps to take to safeguard your mortgage if you face financial hardship. You’ll have knowledge of possible sources of advice and assistance to avoid foreclosure.
Check your loan statement to confirm your mortgage due date as well as what late fees and penalties you can expect to be charged if a payment is not received by that date.
Some things in life are beyond your control. A divorce, a salary cut, the loss of a job, medical expenses, an involuntary relocation or other major event might make it impossible to meet your mortgage obligations. If so, contact your lender immediately to show that you intend to tackle the problem head-on. If your lender contacts you first, cooperate to avoid foreclosure. Remember, your lender can’t help you if you don’t explain that you have a problem.
Write to your lender before the payment is due and explain what the problem is, why it’s affecting your mortgage payment, when you’ll be able to make a complete or partial payment and how long you think the problem may persist. To avoid confusion, mail this information to the address your lender specifies for problems or questions about your account. This address will probably be different from the address where you mail your monthly payments. If you use a payment coupon book or receive monthly statements in the mail, you should find an address listed there. If you don’t see an address for problems or questions, call your lender and ask where to send your letter.
Do not delay seeking help. Your lender can begin foreclosure 90 days after you miss a payment and a foreclosure can hurt your credit record for up to seven years. Most lenders will not approve a mortgage loan if your credit report includes a past foreclosure.
There are several things your lender can do to assist you through financial trouble. You may have options because lenders generally don’t want you to lose your home. Foreclosures are expensive and time-consuming for lenders. Many lenders will view foreclosure as a last resort if you sincerely attempt to work out another solution. The following are some possible alternatives:
There are several signs to indicate you may be on the road to financial disaster. If you see any of the following warning signs, you probably need to re-evaluate your spending and saving patterns to avoid future difficulties. You’ll find more help in Chapter 3, Establish a Spending Plan and Set Aside Reserves.
You may be headed toward financial difficulties if you:
If you experience fewer than five of these signs, your debt may be within manageable limits. When paying off your non-mortgage debt, be sure to make more than the minimum monthly payment so that more money can be applied toward the principal of your debt.
If you experience more than five of these signs, you’ll need to take immediate steps to reduce your total debt before you end up facing foreclosure. First, add up all your bills to determine how much you owe. Then set up a budget to track your monthly income and expenses. Identify as many ways as possible to decrease your expenses and increase your income. Consider contacting your creditors to explain your situation. They may be able to lower your interest rates, suspend fees, or offer you some other short-term relief.
A foreclosure is something you definitely want to avoid. It legally allows your lender to take back your home and resell it if you fail to make your mortgage payments. If the resale value is lower than the amount you still owe on your mortgage, you could end up owing the difference. This is called a deficiency judgment. A foreclosure can have long-term, damaging effects on your credit history because a foreclosure becomes a matter of public record and can stay on your credit report for up to seven years. Fortunately, there are many public and private organizations that are eager to help you get through a financial crisis and hold on to your home investment. You can find help by taking the following steps:
Be on the lookout for foreclosure scams as well. Avoid paying so-called “buyers” or “specialists” who claim they can help you escape foreclosure. At best, they charge money to do things you could do yourself. At worst, they could be scam artists intent on squeezing a few bucks from you. A few of the most common scams—and their disastrous results—are described in the following table.
The Promise | The Reality | The Result |
---|---|---|
“ Sign this paper and I’ll pay your past-due mortgage payments” | The paper is a deed that transfers ownership from you to the scam artist who never pays your lender a cent. | You lose the home and any equity you’ve built up AND you’ll still owe the unpaid balance of your mortgage loan. |
“Sign this paper and I’ll get you a new loan” | The paper is a deed and the new loan has a much higher interest rate than the one you’re already having trouble paying. | You lose the home and get saddled with debt for a first AND second mortgage loan. |
“I’ll sell your home fast for a great price” | The “great price” turns out to be far less than you’d earn on a short sale arranged by your lender. | You lose the home and still have to pay off the unpaid balance of the mortgage loan. |
“I’ll rent your house and pay your lender directly instead of paying you” | Your “renter” lives rent-free and never pays your lender. | You lose the home and end up in foreclosure AND bankruptcy because of the accumulated non-payment. |
If you’re in a bad financial situation, no one can guarantee that you will avoid foreclosure, but you CAN avoid making your situation worse by:
If you get an offer that sounds good, but want to be sure it’s legitimate, talk to your lender before you sign anything. Make sure that your lender will agree to release you from liability for your mortgage debt. Whatever you do, don’t abandon your home. You could lose eligibility for HUD and VA mortgage assistance programs.
If financial difficulties threaten, seek help before foreclosure happens to you. Talk to your lender about working out possible payment alternatives. Avoid foreclosure scams.
If you use a payment coupon book or receive monthly statements in the mail, you should find an address listed there. If you don’t see an address for problems or questions, call your lender and ask where to send your letter.
Do not delay seeking help. Your lender can begin foreclosure 90 days after you miss a payment and a foreclosure can hurt your credit record for up to seven years. Most lenders will not approve a mortgage loan if your credit report includes a past foreclosure.