Most people facing foreclosure first experience a hardship that leaves them unable to pay their mortgage. The hardship is usually caused by loss of income, medical problems, divorce, or a family issue.
Whatever the cause, it's only a matter of time after you stop paying your mortgage before you lose your home through foreclosure. It could be many months or years, but it's eventually going to happen unless you reach a resolution with your bank.
And there are ways you to keep your home and solutions that allow you to exit your property under circumstances that are preferable to foreclosure.
It can be very difficult to determine what option is best for your circumstance. To quote the great American foreclosure expert, Kenny Rogers from his song The Gambler, “You've got to know when to hold em. Know when to fold em. Know when to walk away, and know when to run.” So how do you know when to hold or fold when what you're gambling for is your home?
When To Hold
There's one question to ask yourself to determine if you'll be able to keep your home: Do you have enough income? Keep in mind that you may not need enough income to afford your current payment. If you qualify for a loan modification, you would only need to prove that you have enough income to afford a proposed lower monthly payment.
A loan modification will reinstate your loan and lower the monthly payment to an affordable portion of your income. This is done by permanently changing one or more terms of the loan, like the interest rate, payoff term, and/or principal. Once you're approved for a loan modification and make your trial modification payments, your loan will return to normal servicing but with a lower payment.
It doesn't cost anything to apply for a loan modification, you don't need to have good credit, and there are no closing costs.
Unfortunately it's not all that easy to get a loan modification. Most people who apply for one on their own are denied. You have to have enough income to aford the home but not so much that it looks like you don't need help. It's best to have an experienced attorney help you with the paperwork and make your case to the bank while defending you from foreclosure.
When To Fold
If you don't have the income to keep your home, even with a lower payment, you should to look into an alternative to foreclosure that will allow you to leave your home under the best circumstances. It can be tough to fold and come to terms with the fact that you won't be able to save your home, but you have to make the best of the hand you've got.
Admitting you can't afford to keep your home is not as simple as folding while playing cards. You'll need to figure out which exit you'll take, then do the work to pull it off.
How To Walk Away
Short sale. A short sale is when your lender agrees to let you sell your home for less than the amount you owe on the loan. The price the home brings at a sale will be short of the amount that is required to pay off the mortgage loan.
Deed in lieu of foreclosure. In this agreement, the lender takes the deed of your home, lets you out of your loan, and agrees to not pursue foreclosure in exchange.
Cash for keys. This is can be granted with a deed in lieu except the bank will actually pay you some money to leave the home on a certain date and in agreed upon condition. This saves the bank the hassle and expense of evicting you and allows you to get some money to find a new place to live.
You'll want to get a deficiency judgment waiver when you leave your home with these options. Without it you can be sued for the difference between what you owed on your mortgage loan and the price it brings when it's sold.
When To Run
It is understandable that some homeowners feel the desire to run away from their home without settling up with their bank, but it's not advisable. You could be haunted by a vampire foreclosure. That's when a homeowner moves out of their home assuming foreclosure is imminent and the foreclosure does not immediately go through and they are liable for taxes and fees because they're still the legal owner of the property. Your home keeps sucking your money even though you're not living in it. Protect yourself from this nightmare by reaching a resolution with the bank.
The thing about gambling with foreclosure is that you probably don't know how to play the game, but your opponent, the bank, does. You're outmatched and don't know when it's best to keep fighting or move on. Consider working with an experienced professional to advise you what to do and to help you make the best of the cards you've been dealt.
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