The number of foreclosures today is unprecedented today. Millions of houses in the U.S. are in some stage of foreclosure. However, if more homeowners were to get the right information in their hands faster, before their foreclosure date, many of these foreclosures could be avoided - or at least their losses from foreclosure could be significantly reduced.
Foreclosure affects a homeowner in multiple ways - from a financial, legal, tax, credit, and personal standpoint - and you must address them all to best protect yourself and avoid the most loss.
The top six things you must do when you first realize you're in danger of foreclosure are:
1. Pinpoint the reason you're now facing foreclosure in the first place. If you are experiencing a temporary setback, your options to foreclosure will be different than if you know you definitely can't make your mortgage payments now or in the future
2. Try to keep your loan and work out a way you can afford to make the payments. First, call your lender to apply for a refinance under the Hope for Homeowners Act. If not, ask for a loan modification, repayment or forbearance program to catch up on missed payments and be able to continue making them. Call your lender everyday to let them know you're serious and want to work out a solution. If you feel that your lender is not cooperating, contact a local mediation company for help.
3. If you know you cannot afford to keep your loan, determine when it makes sense to stop making payments. The sooner you conclude that you cannot catch up or consistently make payments, the less money you will give up in trying to save a situation that cannot be turned around. Don't make the mistake of draining all of your life savings, retirement and other funds to hold onto a loan when you know your situation will not change and allow you to get back on track with your mortgage payments.
4 If you must give up your house, determine if your house is in a judicial or non-judicial foreclosure state. Knowing what legal rights you and your lender have is critical when trying to negotiate with your lender to avoid foreclosure.
If you've received a Lis Pendens from your lender, you are in a judicial foreclosure state and your lender has filed a lawsuit against you for the foreclosure and the deficiency. If you've received a Notice of Default from your lender, your house is in a non-judicial state and your lender has not filed a foreclosure lawsuit against you.
However, even if your house is in a non-judicial state, your lender has the right to sue you for the deficiency after a foreclosure or short sale; but there are many variables that determine whether or not they will actually take this course of action.
5. Above all, don't just walk away from your house and let it foreclose. You'll bring on even more problems that could cost you much more than just your house. Try to at least short sale your house to cut your losses in credit and tax. Short sale is when your lender forgives the difference in what you owe on your loan and what a buyer is willing to offer for your house. Ideally, the lender will accept the short sale offer and write off the deficiency as cancelled debt on a 1099-C tax form.
A short sell is a much better solution for both you and your lender. For you, the credit implications are much less than if you have a foreclosure on your record. Short sale is a "bruising" of your credit for one to three years; and less if you use a good credit repair company. Foreclosure can stay on you record for almost 10 years; although it can be less if you take steps to repair your credit and use a good credit repair company.
For your lender, there is less debt they must write off as a loss and the house is sold so the lender does not have to repossess the house; causing even more cost for them.
For those who live in the house, the Mortgage Debt Forgiveness Act excuses you from having to pay taxes on up to two million of debt that your lender cancels in a short sale or foreclosure. However, the Mortgage Debt Forgiveness Act does not apply to those who don't occupy the house, such as investors. To avoid paying taxes on cancelled debt if you're an investor, you'll have to prove insolvency.
6. Consult a Loan Modification Attorney. Attorney Performed Loan Modifications are by far and away the most beneficial to the homeowner. The major difference is that the attorney will find predatory lending violations in your loan documents and threaten a lawsuit if they do not comply with our modification. The attorney will demand a balance reduction if you are upside down, an interest rate reduction, fixing the rate, first payment deferment for a few months, and, if requested, a change in the terms of the loan (i.e. stretching out the repayment period to further lower the payment). When the attorney finds a violation that is a fine plus attorney fees they break down what it is going to cost the bank over the cost of the lawsuit versus our modification proposal. The numbers work so heavily in your favor. For more information call or click here. Don't let your lender get the best of you. Learn your rights and get loan modification help.