The Federal Reserve Bank Of New York recently stated that over the next two years the U.S. could see another 3.6 million foreclosures. With this in mind, it's important for homeowners to know that there are things they can do to help delay or stop a foreclosure on their home.
Home owners who occupy the home as their primary residence are given more consideration by their lender. The bank simply does not want to take homes back and have them on their books as an REO. (Real Estate Owned) But, when a borrower is behind on payments, the only real remedy a lender has is foreclosure. Yet, in my personal experience, helping homeowners who are facing foreclosure, I've found that lenders are willing to work with sincere homeowners who want to keep their home.
The bank does not want to foreclose if it can be convinced that it's in their best interest not to. After all, we're talking about real estate investing here. From the perspective of the lender, your mortgage is an investment. For the lender it's purely an investment decision. If the lender can be convinced that their best choice is to work with a borrower, they will delay a foreclosure proceeding for as long as it takes, as long as they feel that progress is being made.
I've seen foreclosures stopped, modifications approved and found that lenders can be very cooperative if the information that you have provided to them is comprehensive enough to both convince them that you are giving them the facts, and those facts show that they are better off to pursue your requested course of action. That course may be a reduction of interest rates, a lowering of the mortgage payment, a loan modification or other actions that help the borrower stay current on the mortgage.
The main strategy is to prove that what you are telling the lender is true. Then tell the lender what you can afford to pay, and document that with current income statements or check stubs. The lender may not give you exactly what you ask for, but they are much more likely to agree to something and not foreclose.
Prove to them first that you've had a legitimate hardship. They want to help borrowers who've lost their jobs and been a victim of the recession. But how do they know that your case is legitimate? The lender does not know you personally and is not there to see what you are doing. The more you can document your situation, the more likely you are to avoid foreclosure. Unemployment check stubs, a layoff notice, or other items showing that you really did lose your job will help document your hardship. Medical issues can be proven with a doctors letter or copies of medical records.
Prove to them that your home really has lost value and document how much value it's probably lost. You can get a Comparable Market Analysis from a real estate agent that documents the value of your home. Or check Zillow.com or Trulia.com or other real estate websites that give an estimate of a home's value. Print this information out and include a copy in your documentation for the lender.
Show that you can make a payment of a given amount if they will agree to reduce your payments or restructure your mortgage loan. Many borrowers are facing foreclosure due to a loss of income. If you've lost income, use bank records or other documents to show that your income is down from the level it was when you bought your home originally.
If you have cash in an IRA, 401K or other account, you may have the money to pay your overdue balance and bring your loan current. But I only recommend doing this when you know you'll have the income going forward to keep the payments current. Don't waste savings to make up back payments if you do not have the income to keep up with future payments. You could eventually lose both your savings and your home. Use your hardship situation to shoot for obtaining a restructuring of your loan and try to get your mortgage payment reduced to a more affordable level.
Your lender will usually not ask you for information about the homes value or what kind of payment you need, but I always include more information than the basics that they typically ask for. Sometimes I'll even include copies of recent news articles, showing that the market where the property is located has lost value or has a high foreclosure rate. Lenders often lose big bucks when a home goes into foreclosure, so give them good, well documented reasons not to foreclose on your home.
My strategy is usually to try to show the lender that they would lose more money if they foreclose, by documenting what foreclosed homes in the same area are selling for, as compared to what is owed on the existing mortgage.
If you communicate early with your lender, keep in touch with them on a regular basis, provide good documentation to verify the nature of your hardship, and show that your home really has lost value, you have a reasonably good chance of modifying your existing loan, or getting other forebearance from your lender. This may help you stop or avoid a foreclosure, and save your home.
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Author Donna Robinson is a 16 year veteran of the residential real estate industry. She has worked as a licensed real estate agent, teaches a Continuing Education course on real estate investing, and is currently a coach and consultant to real estate investors. She also consults with homeowners who need help avoiding foreclosure. Email her at [email protected] to request a free PDF copy of her latest book on buying and selling homes.