How to Avoid Foreclosure

The most important thing to do if you are facing foreclosure is to not ignore the problem. If you are unable to make a payment on your loan, contact your lender as soon as possible. If you delay, you could fall further behind on your payments, and make it more difficult to work out a solution with your lender. Lenders will often try to work out some plan to avoid having to resort to foreclosure, since it is time intensive and costly process for them. Make sure to respond to letters from your lender, the responses will show the lender that you are concerned about the status on your loan, and are looking to solve the problem. Also review your loan document and learn about the laws that govern foreclosure in your state. If you can, limit expenses as much as possible, and consider selling some of your possessions, even though it might not generate enough cash, it will show the lender that you are taking the situation seriously. And finally speak with an approved counselor or lawyer about the options available to you. Approved counselors are available from The Department of Housing and Urban Development. Also do not sign any document from companies that claim they will fix your foreclosure problem without first consulting an approved counselor or lawyer.

During the redemption period, you may be able to satisfy the lender in some way. Some examples include:

  • restructure financing with current lender
  • refinancing and paying off the current lender
  • selling the property and paying off the current lender
  • asking the lender if they'll take a 'short sale', that is less than the outstanding loan amount
  • get a deed in lieu of foreclosure, this means that you give your house to the lender and the lender will sell the house, but won't report it as a foreclosure. This way it won't show up on your credit report.

If you are considering any of the above options, speak to an approved counselor or lawyer. Then inform the lender of your intentions, so they will know that you are working to pay off the loan.

Foreclosure can be a frightening and hard time for any borrower, however it is important to take action immediately. Many borrowers do nothing, because they have little or no equity in their home, however, by doing nothing, the borrower's credit rating suffers tremendously. The severe drop in credit rating can make it very difficult to get a loan in the future.

Since the specifics of foreclosure vary from state to state, talk to an approved counselor to see what options are available to you, so you can make an informed decision.

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