5 Effective Ways to Halt Foreclosure Proceedings
For the most part, the rampant foreclosures that dominated the early years following the bursting bubble of the housing market and the onset of the Great Recession are nothing more than a distant memory. If you look at the number of foreclosed houses on the market today, you’ll see a marked decrease from just a few years ago. And yet, foreclosures are not limited to times of economic downturn. There are always going to be a small number of homeowners who, for one reason or another, cannot pay their mortgage, allowing for their home to revert to bank ownership. It may be that you have lost your job, that you are suffering an expensive or debilitating medical condition, or that you simply don’t manage your money well. There are myriad reasons why you might find yourself dealing with foreclosure proceedings. But you should know that until you are booted from the house and the bank takes over, you do have some options that could help to stop the foreclosure and give you the opportunity to get back on track.
- Refinance. This is the first and most obvious answer, so if you’re going through foreclosure proceedings, you may have tried this already with little success. But just because one bank turns you down doesn’t mean another won’t give you the new mortgage you’re seeking, complete with a more affordable interest rate. You may also be eligible for some of the options offered by the MHA (Making Homes Affordable) Program. For example, there is HAMP (Home Affordable Modification Program), which lowers your mortgage payment to make it 31% of your pre-tax income. Or you might be interested in HARP (Home Affordable Refinance Program), a good option for homeowners that have found ways to keep paying their mortgage, but have been unable to refinance through traditional lenders as a result. There are several possibilities that you may be able to take advantage of by contacting your local HUD office or visiting the U.S. Department of Housing and Urban Development website.
- Reduce the principal. Another option offered by MHA is the Principal Reduction Alternative (PRA). If you are one of many homeowners that is currently struggling with an underwater loan (as many still are, despite the recent upswing in the housing market) the PRA could be just what you need. The program helps you negotiate with lenders to lower the principle on a home that is valued at significantly less than the amount of your mortgage. Say you bought a home for half a million dollars at the height of the market and it’s now worth half that amount. You may be able to reduce the amount you owe, lowering your monthly payments and giving you the possible option to sell the home without still owing money on it.
- Sell property. If your home is finally worth more than you owe on it and you simply can’t make your payments, now may be the time to sell so that you can avoid foreclosure. Even if you don’t make a cent on the transaction, you can come out the other side without any debt or black marks on your credit.
- Rent out property. Selling might not be an option, depending on how much you owe versus the current market value of your home. In this case, you might want to think about taking on renters as a way to bring in the passive income that will help you pay your mortgage. Or you might move into a more affordable place and rent out your entire house. You could end up paying all applicable costs (mortgage, insurance, property tax, etc.) and even earning a little on top by this method, and you’ll continue to work towards your goal of paying off your house in the meantime. Unless you want the U.S. title records for your home to say that it’s owned by the bank, it might be time to swallow your pride and get a little help from renters.
- Suspend your mortgage. If you’re really in a bind because you have lost a job (making it impossible to find a new place to live, for example, while you rent out your home), you can petition for the Unemployment Program (UP) through MHA. This would allow you to reduce or even suspend your mortgage payments for at least a year while you seek employment. You don’t want to think about some vulture doing a property title search to find foreclosures and settling on your family home. So take the steps necessary to protect your investment.