You are Not Alone
If you’re facing foreclosure, although it may seem like a small comfort at the moment, you’re not alone!
The following chart shows the total number of Michigan properties that received some type of foreclosure filing such as a Default Notice, Sheriff’s Sale, or Eviction through the month of November.
Don’t become just another statistic. Explore your options and take take action as soon as possible to stop the foreclosure process. The longer you wait, the fewer options you will have.
Tips for Avoiding Foreclosure
Are you having trouble keeping up with your mortgage payments? Have you received a notice from your lender asking you to contact them?
Don’t ignore the problem.
Open and respond to all mail from your lender. The further behind you become, the fewer options you have and the more likely that you will lose your house. Learn your options and take action as soon as possible.
Contact your lender as soon as you realize that you have a problem.
Lenders do not want your house. Even before you miss a payment you can contact them. You may be able to negotiate a financial hardship plan to help you through the difficult financial times.
Understand foreclosure prevention options.
Information about what options you have once you have received a foreclosure notice can be found in our Learning Center.
Contact a HUD-approved housing counselor.
The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide.
Prioritize your spending.
After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other “unsecured” debt until you have paid your mortgage.
Try raising some quick cash that you can put towards your payment.
Do you have assets such as a second car, jewelry, or a whole life insurance policy that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don’t significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
Avoid foreclosure prevention companies.
You don’t need to pay fees for foreclosure prevention help. Use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month’s mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.
Don’t lose your house to foreclosure recovery scams!
Don’t let a counselor pressure you to sign paperwork you haven’t had a chance to read through carefully or that you don’t understand. You may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney or a trusted real estate professional.
What is an upside down mortgage?
Whether you call it upside down, or underwater, it means the samething. It means that you have no equity in the home. In other words, the total balance owed to the lender is greater than the price at which the house can be sold.
If you bought your home in the past few years, chances are that you are in this situation. However, it’s only a problem if you need to sell your home now. If you have no need to sell, then it’s only a “paper loss”. This is similar to what has happened to most retirement accounts over the past 18 months. Provided that your homes value has not decreased do to other reasons such as a decaying neighborhood, values should recover over time.
I’m in foreclosure. Should I just walk away?
Today, this decision is happening at all income levels with many homeowners deciding to simply walk away and let the bank foreclose, thinking that it’s the easier choice.
The truth is that unless you are planning on living in a cave in the future, you should try to avoid foreclosure at all costs to save what’s left of your credit. That said, often a short sale is your best and only option. Here’s why a short sale is better than a foreclosure.
First, let’s understand that foreclosure is the bank’s way of trying to satisfying their financial claim against a homeowner when they stop making payments. They have that claim because when the homeowner bought their house, they signed a mortgage to secure the loan. And the bank could seek a judgment against the homeowner after the foreclosure completes, for the balance of the mortgage owed.
A short sale is actually a process that allows the homeowner to sell the property with the bank’s approval, for less than what is owed to the bank, and stop the foreclosure process. After a short sale, depending on the financial situation of the owner, and their policies, the bank could seek a judgment against the owner for the balance. In addition, the IRS, could view the forgiven mortgage balance as phantom income.
So, if either the bank or the IRS could come after you for the balance, or the taxes, why does it matter? Why not just walk away and let the bank foreclose? Here are some considerations that should be part of this decision:
- With a foreclosure, your credit score may be lowered by 250 to 300 points. Typically they affect your score for over 3 years. In a short sale, the credit score is lowered by much less and the mortgage will be reported as paid or negotiated, while affecting your score for 12 to 18 months.
- A foreclosure remains on the credit history for 10 years or more. A short sale is not reported on a credit history. It is usually reported as “settled for less than the full amount”.
- A foreclosure takes much longer to process than does a short sale, resulting in a higher amount of the deficiency judgment for additional taxes, maintenance, and interest costs. A short sale will usually have a much smaller judgment associated with it.
- A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae mortgage for five years. A short sale homeowner is eligible for a Fannie Mae backed mortgage after only two years.
No one wants to be in a situation to have to make this choice. But if forced to choose, the short sale route is truly the lesser of two evils.