8 Tips for Avoiding Foreclosure

If you are prepared with the right knowledge and tools, you can avoid foreclosure.  After reading this, you will know how to work with your lenders to potentially avoid foreclosure and maybe even stop foreclosure from happening in the first place.

1. Identify that you have a problem.

The further behind you become on you rmortgage payments, the harder it will be to reinstate your loan and the more likely that you will lose your house.

2. Contact your bank right away.

Banks do not want to own your house.  They are in the business of lending money, not owning real estate.  They have programs available to help people in distress.

3. Communicate with your bank.

The bank will send good information that will help you determine what programs are available to help avoid foreclosure.  They will also send legal notices which outline your legal responsibilities.  Open and read these notices.

4. Know your mortgage rights.

Find out what action your bank can take when you start missing payments.  Do some research and find out what laws apply in your state.

5. Understand foreclosure prevention options.

Below are four programs that banks routinely offer to homeowners in distress.

a. Refinance - This is one of the most common activities to avoid foreclosure in the mortgage industry. If you have enough equity in your home, you can refinance with a different lender and try to lower your interest rate and reduce your monthly payment. Many times this is a band aid solution and may not actually solve your problem.

b. Loan Modification - Generally offered by your bank, loan modification is made to either the rate or the balance of the mortgage. This happens when your banks changes the interest rate or the balance on the mortgage in order to decrease the amount of the monthly payment. this is becoming more common but there are still low success rates as many homeowners do not qualify. There are certain income requirements that vary by lender.

c. Repayment Plan - If you are behind on your payments, you may be eligible for this program. Your bank will add a portion of the past due balance to the monthly payment in order to pay off that late balance in a shorter period of time without paying extra interest.

d. Short Sale - In a short sale, you and your bank agree on selling the house for less than the balance on the mortgage in order to pay off the debt and avoid foreclosure. Short sales are usually related to the current real estate market and the borrower's financial situation. A short sale is typically used to avoid foreclosure and prevent damage from appearing on your credit score for years.Short sales are very common because of the falling real estate prices and the lose of equity for many homeowners looking to avoid foreclosure.

6. Prioritize your spending.

After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.

7. Avoid paying foreclosure prevention companies.

You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, some will charge you a hefty fee for information and services your lender will provide free if you contact them. There are companies that are members of the Better Business Bureau that will help avoid foreclosure without charging fees.

8. Don't lose your house to foreclosure recovery scams!

Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney or a trusted real estate professional. There are unethical companies that will prey on distressed homeowners and get involved in a we buy houses scam.

Contact a local foreclosure prevention specialist that will guide you through the process and knows all of the programs available to help you avoid foreclosure.