Tuesday, March 25, 2014

How to avoid foreclosure

Foreclosure happens for a number of reasons including the effects of a bad economy, job loss or a simple miscalculation of how much you can afford. The thought of having to deal with huge debt may prompt you to succumb to foreclosure. Before you go down that road, here's how to avoid foreclosure...

Whether you're dealing with a bank or a lending institution, don’t be afraid to be honest with your creditor about your financial situation.

Be aware of warning signs

It’s important to keep abreast of your financial situation. Before foreclosure becomes an inevitable fact, there are some warning signs you will encounter. If money is tight and hardly enough to cover your everyday expenses after paying your mortgage installments, it’s time to evaluate your situation. Recognizing your circumstances early will help solve the problem before it’s too late. 

Talk to your creditor

Whether you're dealing with a bank or a lending institution, don’t be afraid to be honest with your creditor. In fact, keeping your creditor in the loop on why you’re coming up short on your payments may help you avoid foreclosure.

In the event of foreclosure, lending institutions have to spend money on eviction costs, lawyer’s fees and caretaker expenses. Most will want to avoid these expenses and would be willing to negotiate with you, so keep your communication lines open to show good faith on your part to settle your financial obligations. 

Restructure your loan

If you’re faced with foreclosure but don’t want to part with your home, you have two options. The first entails restructuring your loan, meaning extending it to a longer time period. This will lower your monthly amortization and help ease your financial burden. Banks and other lenders usually have a maximum percentage of bad loans on non-performing assets, so they may be willing to restructure your loan instead of foreclosing your home.

If you have not yet defaulted on your payments, another step you can take involves refinancing with another bank or lender. If you go for a loan with a lower interest rate and a longer payment term, your monthly amortization will also be more manageable. 

Sell your home

Loan contracts have an acceleration clause that will make your entire loan amount due and demandable once you default on the loan. Thus, the only remedy is to pay the whole amount upfront. This can be a difficult sale as interested buyers won’t have the luxury of time to apply for bank financing and will have to pay the full amount in cash. As the seller, you also don’t have time to wait for the best offer, so you may have to settle for an offer that is below market value. However, the best case scenario is to get an offer that is at least equal to your entire debt.


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