Foreclosure: The Last Option
When considering what to do with your home, foreclosure should be looked at as the last option. It is the last option because this option is the easiest one to get and you don’t have to do anything to get it. However, the last option is one that no one wants so you need to fight back to avoid it. This is a war and you don’t want to go down without a fight.
You should fight like mad to avoid a foreclosure which will wreck your credit, embarrass you, make you homeless, put stress on your family, and make it difficult to rent a place to live because your credit will be ruined. Foreclosure is for the person who wants to put their head in the sand and act like it’s not happening. I’m sure we all know someone who we thought was doing great and then out of nowhere, we hear that they lost their home to foreclosure. And then we think, if we only knew, we could have helped them. This has happened a couple times in my life and these were relatives of mine that knew I was in the mortgage business and I would have been a great mentor to them. However, they didn’t ask for help and I didn’t know they needed it. When people have too much pride, are embarrassed, can’t ask for help, and act like everything will work itself out, this is when the inedible foreclosure will come into their life.
The first and best place to start when you are late on your mortgage payment is with a loan modification. There is a new government program called Making Home Affordable (HAMP) and it does just that. This program is designed to make your home more affordable by reducing your mortgage payments to 31% of your household gross income. All lenders have this program available or one that is similar. The main requirement to qualify for this program is you need to have a hardship and payments that are too high. Obviously, if you are falling behind on your mortgage payment, that is your hardship and you should qualify. This program will allow you to catch up on your mortgage payments, keep your home, and give you a fresh start.
Sometimes you just want to be done with your home nightmare and want to give the house back to the bank. In this case, you could do a died-in-lieu of foreclosure and get paid thousands of dollars from your lender. A died-in-lieu of foreclosure is the voluntary transfer of ownership in your property to the servicer. Foreclosures are expensive and cost on average of $50,000 per foreclosure according to a survey held by the Federal Reserve. Many people call a died-in-lieu of foreclosure cash for keys. How this works is when you know that you are wanting to foreclose on your house, you can call your lender and simply ask them: how much money will you give me to sign a died-in-lieu of foreclosure? You have the upper-hand and if you don’t like the amount they give you, decline it and call back at a later time and see what they can give you. I would be looking for a number of no less than $5,000. After all, how long can you live there without paying the mortgage? Four months of living mortgage free with a $1,500 mortgage is $6,000. A better strategy would be to live in the home mortgage free for as long as you can and when you feel your time is running out pursue the died-in-lieu of foreclosure for cash which will be a good down payment on a rental.
Home Affordable Foreclosure Alternatives (HAFA) Program
There is a new died-in-lieu of foreclosure or short sale program called Home Affordable Foreclosure Alternative (HAFA) Program. When your mortgage payment is not affordable and you are interested in transitioning to more affordable housing, you may be eligible for a short sale or deed-in-lieu of foreclosure through the HAFA program. With this program, they will first require you to sell your home as a short sale and the benefit of a HAFA short sale is that you are no longer responsible for the difference between what you owe on your mortgage and the amount that your home sells for. You will also receive $3,000 for relocation assistance upon successful closing of your short sale or died-in-lieu of foreclosure. If the short sale falls through, your servicer will consider you for a died-in-lieu of foreclosure.
Below are a list of requirements for the HAFA program according to their website:
- You live in the home or have lived there in the last 12 months.
- You have a documented financial hardship.
- You have not purchased a new house within the last 12 months.
- Your first mortgage is less than $729,750.
- You obtained your mortgage on or before January 1, 2009.
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
This article is the eighth of a Do-It-Yourself approach to home loan modifications. Check back often or subscribe to this site to stay tuned for the next article in this series (a new post will come out each week day for a month), designed to help you complete a loan modification on your own, cutting out the middle man, helping you protect your ability to stay in your home for the best price possible, and helping you lower your payments as much as possible. After all, nobody will look out for you as well as you can look out for yourself.