Procedures for Homeowners in Foreclosure
- Contact a HUD or HUD-approved foreclosure avoidance counselor to learn about your state's foreclosure laws. Find out how long the process typically takes in your county. Inquire about whether or not your state observes the "right of redemption," which allows a homeowner to regain ownership of the foreclosed property within a specific period of time. Know, too, if your state allows lenders to seek deficiency judgments, wherein you may be held responsible for the difference between the sale price of your home, whether in a short sale or bank auction or sale, and the home's value. NeighborWorks, a nationwide network of community-based nonprofit organizations, reports that homeowners who face foreclosure and work with a HUD-approved housing counseling agency are 60 percent more likely to avoid foreclosure than homeowners who do not.
- Gather your financial documents so your counselor and lender can assess your financial situation and work with you to find a workable solution. The U.S. Federal Trade Commission recommends that you make the following available: pay stubs and other documents showing your monthly before-tax income; bank and investment statements showing your assets; your most recent tax return; your monthly mortgage statement; documentation for a second mortgage, if applicable, such as a home equity loan or line of credit; most recent credit card and loan statements showing your balances and minimum monthly payments. Your lender will also ask you to fill out a hardship affidavit explaining the change in income or expenses that led to your inability to pay, so be prepared to offer documentation of that situation, too.
- Call your loan servicer -- the company to which you make your payments -- and request assistance in stopping the foreclosure. Lenders are making a number of foreclosure-prevention programs available to borrowers in default in an effort to help them stay in their homes. The options available to you will depend on the lender and the type of loan. They many include a repayment plan to spread out payments on your overdue balance as you keep up with current payments; forbearance, which may allow you to defer or reduce your payments for a period of time; and loan modification, which reduces your payments by changing the terms of your loan. Tell the loan servicer that you're serious about repaying your loan and are working with a HUD-approved housing counselor in an effort to expedite the process.
- Consider selling your home. Your lenders may give you extra time before it proceeds with the foreclosure if you price your home competitively, but high enough for the sale to pay off your mortgage and cover the closing costs. If your home is worth less than you owe, consider a short sale. The lender will need to approve the sale and the sale price, and your credit score will take a serious hit. However, your credit may recover from a short sale a little faster than it would recover from a foreclosure.
- Contact a bankruptcy attorney for a consultation. Although bankruptcy is a option of last resort because of the long-term damage it does to credit scores, for homeowners unlikely to be helped enough by loan modification to be able to resume their mortgage obligations, Chapter 13 bankruptcy offers a foreclosure reprieve and the chance that the lender will agree to repayment terms more favorable to the borrower than would be possible with a modification.