Avoiding foreclosure

From the Poughkeepsie Journal:

Avoid home foreclosure — at any cost

If you’re lying awake at night, fretting about whether you’ll lose your house to foreclosure, you may not be the only insomniac on your block.

More than 2.1 million Americans with home loans missed at least one payment last year, according to the Mortgage Bankers Association. Even more troubling, the rate of new foreclosures hit a record.

The problem is likely to get worse. As adjustable-rate mortgages adjust to higher rates, many borrowers find they can’t afford their payments. And the collapse of the subprime market has made it harder for those with tarnished credit to refinance.

But be aware: Even if your mortgage has become an intolerable burden, letting the bank foreclose could lead to a lifetime of hurt. Losing your home is just the beginning. A foreclosure will wreck your credit report for years, making it impossible – or at least extremely expensive – to buy another home, said David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. If the proceeds from the sale of your home don’t cover your loan, your lender might sue you to recover the unpaid balance.

Many borrowers who lose their homes to foreclosure haven’t tried to negotiate with their lenders. That’s unfortunate, because lenders are usually willing to work with borrowers to avoid foreclosure, said John Lamb, co-author of “Solve Your Money Troubles.” “With the number of foreclosures on the horizon, lenders are going to be more willing to work with people, because it doesn’t do anybody good to have a glut of foreclosed houses on the market.”
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If you’re in a home you can’t afford, loan forbearance isn’t going to solve your problem. But even if you have to move, you can take steps to avoid foreclosure:

– Put your home up for sale. This may be the best choice, Walters said, if you’ve been in your home for several years and have built up some equity. If your local real estate market is strong, your lender may agree to forgo payments until the house is sold, said John Jones, a financial specialist at ComPsych, an employee-assistance program. The proceeds from the sale might cover your mortgage and selling costs.

– If you have no equity or your local real estate market is depressed, ask your lender to consider a “short sale.” In a short sale, the lender agrees to accept the proceeds from the sale of your home, even if they don’t cover the amount you owe.

– Ask your lender to accept a deed in lieu of foreclosure. If you can’t sell, your lender may agree to take the deed to your home and cancel your debt.