When life hands you lemons, you make lemonade. Even if what's sour is something as consequential and life-altering as foreclosure. There are countless examples of people experiencing a terrible event in their life and turning it into a positive. It's hard for anyone in the middle of a difficult situation to imagine how something bad can be good in the long run. And to be fair, it may not. But you can maximize the chances of making your sour situation sweet by turning your attention to what you can do to fix it.
The threat of foreclosure is extremely stressful, but it can prompt you to restructure or reduce your debt to a more manageable level or get out of your unaffordable mortgage payment. That's a good thing for homeowners who don't have the income to afford their mortgage payment.
If your lender is threatening to foreclose on your home, it means you haven't been paying your mortgage, probably because you can't afford to. And there are only two possibilities when you default on your home loan. You either reach a resolution with your lender to keep the home or you don't. There are different ways each of those can play out depending on your situation. And they may not be as bad as you think. Some of them can leave you in a better position than you were before.
If your mortgage payment has become unaffordable because of a hardship, but you think you could afford a lower payment, consider the following options:
Loan modification. A loan modification permanently changes one or more of the terms of your loan to bring the monthly payment to 31% of your gross income. Banks can modify a loan under the federal government's Home Affordable Modification Program (HAMP) guidelines or through an in-house program. And banks aren't supposed to dual-track you, which is pursuing foreclosure while considering you for a loan modification.
Short refinance. While not common, some banks will cancel your current loan and give you a new one for a balance that's closer to the market value of the property. Like a loan modification, a short refinance allows you to keep your home with a more affordable payment.
If you don't have the money to afford your home, there are options for leaving that can help you get out of the debt you owe on your home loan and get your financial life back on track:
Short sale. A short sale is when you are allowed to sell your home for less than what you owe on your loan.
Deed in lieu of foreclosure. This is when the bank cancels your mortgage in exchange for taking ownership of your home. They usually require you to try and sell the home in a short sale before agreeing to this.
Cash for keys. This is like a deed in lieu except that the homeowner is paid some money in exchange for leaving the home on an agreed upon date and in good condition.
With these options you should get a deficiency judgment waiver so you're not responsible for the deficient amount. That way you can walk away from your home with no debt at all.
Attorneys with experience in foreclosure defense know how to use the law to get you the maximum amount of time in your home. For many homeowners, especially those in judicial foreclosure states, it can be years from the time you miss your first payment to when you actually have to leave your home. Imagine how much money you could save if you didn't have to pay your most expensive bill for years. Enough to replenish your savings and put a security deposit on an apartment or save for a down payment on a more affordable house. It can take some of the sting out of the situation and give you more of a financial cushion.
Giving up your home in a short sale or deed in lieu of foreclosure is better than being evicted from your home after a foreclosure sale. And keeping your home by modifying your loan to have a more affordable monthly payment is better than giving it up. But you need to take advice from someone who has experience successfully helping people in your situation.
Foreclosure lemonade isn't made by putting all the threatening letters the bank has sent you into a blender, then going out for a margarita, although many choose that route. It's made by making informed decisions based on knowledge of the laws and regulations that concern foreclosure. If you do the right things now, you may soon find yourself in a sweet position and feeling gratitude that the sour days have passed.
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