How to Cut Your Losses and Allow Foreclosure

If you are faced with an inevidable foreclosure - you may be better off walking away frome your home

No one wants to lose their home to foreclosure, but if you are one of the millions of people that are facing it and you have no way of making the payments, it may be better for you to walk away from your home. If you are unable to make the ends meet, you must notify your bank and work with it until the process is resolved.

Things You'll Need

• Record of bills and income statements
• Credit report and score
• Mortgage papers

Instructions

1. There are literally hundreds of thousands of people that are upside down in their mortgage and unable to make their payments. In most cases, many cannot refinance because their home is now worth less than it was when they purchased it and the payoff of the loan is actually higher than what the house is worth. If you are one of the people that purchased a home with an adjustable rate mortgage that is about to adjust past your ability to pay it, tally all your monthly expenses, your new mortgage rate and decide whether you will be able to pay this with the amount of income you have coming in each month.

2. If you are coming up short each month, find out by how much. Then, look to see if you have enough savings to supplement the monthly deficit each month and for how long. If it is less than a year and you have the savings to cover your loss, you can short sell it and come to the closing table with the difference to cover closing costs and the balance of your loan. If you do not have the savings, you could ask the bank to modify the loan and pay the monthly modified loan amount. Failing that, you could show a hardship reason to the bank and be allowed to short sell it upon bank approval, in which the bank will pay the difference and you may be eligible to be forgiven the debt to the bank. Finding a "short sale" experienced Realtor to place it on the market will be key here to do the best to sell it rather than have the bank foreclose, but in doing so, you will need to stop making payments on the house. If you cannot do any of the above, then it is time to take command over your situation and decide to allow the bank to foreclose.

3. Once the decision to allow the bank to foreclose is made, you will be stopping all payments to your lender. Your mortgage payment, or at least the part of the mortgage that you would have been able to pay, should not be spent on new clothes, flat screen TVs or other toys. You need to take the money that you would be paying out and saving up for your move. You will need money to move to a rental, and will need enough money for first and last month's rent, security deposit, moving truck and utility deposits. Each month, put that money in savings toward rebuilding your family's financial stability and take control of your finances.

4. Once you stop paying your mortgage, your bank will call you constantly. You should answer your phone and tell the representatives that they are no longer authorized to contact you by phone and that any correspondence should be made through the postal service. This will stop the phone calls and help reduce the stress you have from this important financial decision.

5. The bank will generally take about three to four months of delinquency to place your house in foreclosure. You then will have several months of legal proceedings that will lead up to the final judgment to allow your lender to take your property rights from you. Then the lender will typically have a waiting period and then finally auction off the home to recover losses on the loan. Stay in your home for as long as possible. Then when you must leave, move to an affordable rental.

6. Clean up your credit as best you can. You will have a foreclosure on your credit, which will lower your credit score. However, the black mark on your credit can only last for seven years from the date of the foreclosure. You will also note that as time moves on through the seven years and the further back the foreclosure becomes, it weighs less on your score. Work on any other credit issues to improve your credit and with time you may have a better credit rating than before. You will eventually be able to own a home again and that could be as soon as two years after the foreclosure.

Tips & Warnings

• This is advisable for the families that got caught in between the housing boom and recession losses with no way to refinance and it becomes a decision of either feeding your family or paying an outrageously high adjustable rate hike.

• This method is not advisable for people that can afford their loans and just have better-house-next-door-for-cheaper-price envy. If you ever have legal questions seek a qualified attorney for advice

References

• Bankrate.com: Life After Foreclosure
• CNNMoney: Life After Foreclosure