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2011-03-23 11:05:00
If you're behind on your mortgage...

Avoid Foreclosure

August, 2007
California Real Estate magazine
Official Magazine of the Califonia Association of Realtors

by Elyse Umlauf-Garneau

If you’re behind on your mortgage, don’t automatically assume you’ll lose your house. Quick action might allow you to keep your property.

Raise funds: Examine your spending to see if you can slash expenses. “People waste lots of money on things like $3.75 lattes,” comments Randy Johnson, author of How to Save Thousands of Dollars on Your Home Mortgage and contributor to Credit.com. Can you get a second job? Swap your car for a less costly one? 

Contact your lender immediately: Lenders prefer a performing asset over a foreclosure and are frequently willing to work out a repayment plan. You’ll need to provide a detailed financial picture and outline your strategy for staying up-to-date with your mortgage. Here’s an example of what lenders will need: www.housingeducation.org/edi/pdf/edi_worksheet.pdf.

Whenever you’re asking for help from a lender, Speare Valasakos, CEO and corporate broker, Frontline Realty Group, San Diego, suggests clearly illustrating what you’ve done—selling a car and meeting with debt counselors—to avoid future crises. Here are some options they often consider.

Forbearance: Lenders may let you make a lower or no payment temporarily—say for three to six months. You’ll likely have to make higher payments when you start paying again to bring the loan up-to-date.

Repayment: If you’ve recovered from your crisis, lenders may allow you to pay more each month for a set period to make up missed payments.

Modifications: Lenders can reduce interest rates and extend loan terms to reduce the monthly payment.

Short refinancing: Under a short refinance, you refinance and the original lender accepts a payoff for less than you owe. Valasakos had a client with good credit who was going to be upside down on a loan. The $470,000 property was 100 percent financed and its value had dropped to about $425,000. The lender accepted $425,000 once Valasakos showed that the lender would lose more by foreclosing.

Short sale: You can sell the property and lenders may agree to accept less than you owe. This saves you from having a foreclosure on your credit record.

Before accepting any deal, consult with your accountant. Depending on the type of loan you have, you could owe income taxes on forgiven debt.

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