Falling behind on your mortgage doesn't mean losing your home to foreclosure is a foregone conclusion. What happens and when depends in large part on how you respond to your situation. You may be able to keep your home or at least exit it under the best circumstances. But to do that you have to act on good information and avoid the mistakes that are often made by homeowners in foreclosure, which include:
1. Assuming your lender is going to help you.
Though your lender has the power to help you, you should not assume that they will. You and your lender's goals don't always align. Following a default, you probably want to keep your home but with a lower payment. The bank simply wants to make as much money as possible from the loans in their portfolio. Sometimes helping you keep your home is also the best way for the bank to make the most money, sometimes not.
You need to convince the bank that a mutually beneficial solution, such as a loan modification is worth it. A loan modification can reinstate your mortgage with a lower payment while extending the term length. The lower payment helps the homeowner, but the extended term also results in more interest being paid to the bank over time.
The challenge can be convincing the bank that you will actually be able to make your mortgage payments for decades to come without defaulting again. Many homeowners fail to do that and their loan modification application is denied. However, a denial doesn't mean you'll never get approved.
2. Giving up on a loan modification when you receive a denial letter.
Loan modification is the only option many homeowners have to keep their home. So when a desperate homeowner has their loan modification application denied, it can be devastating. Some may give up and decide it's best to pursue something like a short sale. Having experience with thousands of loan modifications, we know that denial is just part of the process, because you can usually appeal the denial or fix what is wrong with it and reapply.
The bank needs to see certain things in order to approve a loan modification application. If you can prove your ability to pay, you can usually be approved. But you have to know what they want to see. That's where having experienced professionals on your side really matters. It can be the difference between denial and approval.
Learn how to complete a financial worksheet for loan modification.
3. Ignoring notices from the bank, their lawyers, or the sheriff.
When you fall behind on your mortgage, you'll start receiving letters from the bank. Depending on what state you live in, you could also hear from the sheriff. You could get a notice of default, breach letter, intent to accelerate, summons and complaint, notice of foreclosure sale, and more. These all contain important information about what's happening with your home and mortgage. Read everything carefully and take the appropriate actions.
Our firm has talked to many people who deal with foreclosure by burying their heads in the sand. Then they panic when it becomes clear that they really will be losing their home soon. At that point their options are more limited than if they had acted sooner. For example, in judicial foreclosure states you have the right to respond to a complaint and deny the bank's charges and raise affirmative defenses. But it's supposed to be done within a certain amount of time, about 30 days after being served in most states. Overwhelmed and unsure about what to do, some simply do nothing.
It can be tough to acknowledge that your situation is as serious as it is, but you should because failing to do so will only make it easier for the bank to foreclose on you.
4. Expecting a miracle.
It's good to be optimistic. Good things can always happen. We've had a client remain in their home without making a mortgage payment for nine years. By all means, hope for the best, but don't hang all your hopes for keeping your home on a long-shot best-case scenario with no backup plan in case it doesn't work out. You will not be able to get a free house. You need real-world solutions to keep your home.
5. Trying to do everything yourself.
Some things are too important and complex to handle on your own. Dealing with foreclosure is one of them. There are ways to cancel a sale date, prolong the foreclosure process, and maximize your odds of getting approved for a loan modification. If you don't know them, you're missing out. If you are able, consult with an experienced foreclosure defense attorney. Most reputable attorneys offer a free initial consultation, and may be more affordable than you think. The peace of mind that comes with knowing your case is in good hands is invaluable, and can help you get the best results.
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