Foreclosures are a part of everyday life, especially in the current market. Going through a foreclosure means that you lose your home. All the hard work and money poured into your home is gone. If there is a difference between what the house sells for and what is owed, you are responsible for that difference. For example, if your home forecloses for $100,000 but you owe $125,000 to the mortgage company, you will be responsible for coming up with the $25,000 difference.
Depending on the situation, it will be either the lender or Department of Housing and Urban Development (HUD) that will do the pursuing for what is called a deficiency judgment. Now you owe a ton of money and your credit has been negatively affected. The best solution to foreclosure is to learn how to avoid it. When you first start getting into financial difficulty, contact your mortgage company. In the majority of cases, they understand that situations beyond your control arise and therefore, will be willing to work with you.
If you receive any type of letter from your lender stating you are late on a payment, whatever you do, do not ignore it. By setting notices aside will not make them go away and only makes the lender think you are not interested in solving the problem. Another important factor is not to leave your home. Vacating the property can actually do more harm than good and can easily disqualify you from assistance.
A valuable resource is your local HUD-approved housing agency. They offer specific information on programs and services offered by the Government that can provide assistance. Generally, these services are free. If you financed through a VA loan, you should contact the nearest office to you. There are some very specific options to help. These include:
Mortgage Modification
This option allows your loan to be refinanced or extended. The purpose is to help you in being caught up by lowering your monthly payments to something that is much more manageable during your time of financial difficulty.
Special Forbearance
In this case, the lender will try to rework a payment arrangement based on your current financial situation. In addition, they will try to provide some type of temporary reduction or suspension of payments. You will be required to meet certain criteria for this option.
Pre-foreclosure Sale
This option allows you to sell your house as a way of avoiding foreclosure. To qualify, the value of your property must be a minimum of 70% of what you owe with the sales price no less than 95% of the appraised value. In addition, you cannot be more than two months behind in payments and the house has to sell between three and five months, based on the lender’s requirements. This option has an added benefit in that you will receive assistance on any closing costs.
Partial Claim
For this option, an interest-free loan is secured by your lender with HUD. Again, there are certain qualifying criteria. Your mortgage loan cannot be more than four months behind in payments, you have no other foreclosure proceedings, and you have proof that you can make the new full payments. For this situation, HUD pays the lender the amount needed to bring the loan current. You will be required to sign an interest-free Promissory Note. In addition, a lien will be placed on your home until the Note is paid off in full. The Note becomes due when the mortgage matures or you decide to sell your home.
Deed-in-lieu of Foreclosure
This particular option should be your last choice. In this case, you voluntarily give the lender your home. Although you will not be able to keep your home if you make this choice, your credit is not damaged. Therefore, you have future opportunities to buy a house as long as any attempts of selling the house prior to foreclosure were unsuccessful and, you do not have any other FHA loans in default.