How to Cut Your Losses and Allow Foreclosure

No one wants to lose their home to foreclosure, but what if you are one of the millions of people that are facing a skyrocketing adjustable rate change and have no way of making the payments? Would it be better for you to walk away from your home if you could still legally live there for up to eight months or even longer? Could you repair the damage to your credit and own a home ever again?

Difficulty: Moderate

Instructions

Things You'll Need:

• one months worth of bills and income statements
• credit report and score
• mortgage papers regarding your rate change

1. 
   Start by finding out if you are losing money each month

   There are literally hundreds of thousands of people that are upside-down in their mortgage for their home right now because they bought a home during the real estate boom with little or no money down with non-traditional loans. Now that the real estate market plummeted, they 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 two or three years ago with an adjustable rate mortgage that is about to adjust out of your realm of ways to pay it, you are not alone. Many people have suffered loss of income from a financial problem or life changing event that will make it impossible to pay the higher adjustable mortgage rate and are facing foreclosure in their future. Find out if you are one by tallying 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. 
   Find out if there are other viable options rather than foreclosure

   If you are coming up short each month, find out by how much. Do 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. (If you would like a referral to a short sale experienced realtor, contact this author, [e-mail], and at no cost to you, will refer an agent in your area of the country to assist you.) 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. 
   Prepare to move to a rental

   Once the decision to allow the bank to foreclose is made - and that is a difficult step - 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, first and last months rent, security deposit, moving truck, and utility deposits. Each month put that money in savings towards rebuilding your family's financial stability and take control of your finances.

4. 
   Get the bank to stop calling you

   Once you stop paying your mortgage your bank will not be very pleased with you. Bank representatives will call you consistently. You should answer your phone and tell the representatives that they are not 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. 
   It will take some time to go through the foreclosure process

   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 judgement 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. 
   Improve your credit score each year

   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, it could be as soon as two years from the foreclosure!

7. 
   Taking control is better than being a victim. Rest well.

   Once you are in your new rental home or apartment, relax. You took control of a situation and instead of ignoring the problem until you were forced out of your house, you chose to stop throwing good money after bad and save as much as you could to start over. Not all families that faced foreclosure are "deadbeats", some are really solid hard working folks that made a decision to feed their families before feeding the enormous bank rate hikes. Rest well.

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. You have to have personal integrity.
• If you ever have legal questions seek a qualified attorney for advice

[FrenchMermaid]

on 2/21/2009 Thank you for your timely advise!

[Admin911]

on 2/18/2008 I have worked extensively in the mortgage industry. There ARE programs through your mortgage company called Loss Mitigation. The mortgage company works with investors and the homeowners to try and assist them in keeping their homes by either working on a payment plan or assist with other programs that may be available. Call your mortgage company and ask to speak with someone in Loss Mitigation so that you can get further details on what to do next.

[jwilli001]

on 2/8/2008 I have heard that the best way to do this is to turn the house over to the bank BEFORE missing a payment. If you have no "mortgage lates" on your credit report, it will be much better for your credit.