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Tips for Surviving Foreclosure

When foreclosure notices start coming in, it’s tempting to shut down and ignore the problem, hoping it will go away. But without facing it head on, the problem won’t be going away. Losing a home that you’ve built over the years is unimaginably difficult, yet many Americans face this reality today. Getting over the initial shock is the hard part, but once you’ve read the notice and had a moment to calm yourself. Review the laws in your state to find out what, if anything can be done.  Some states have foreclosure by “Sheriff’s Sale” where the Sheriff auctions a home after it is foreclosed upon. Each state has its own laws regarding the foreclosure process, and how foreclosures are bought and sold so you need to check on your local regulations.

Address the Problem

ForeclosureToo many home owners refuse to pick up the phone when a lender calls. You should read any mail that you receive carefully and talk to your lender the moment that you realize you have a problem with your mortgage. Keep careful records of any documentation you send or receive, request send receipts with every document you send to your lender, and place follow up calls to be sure that your documents are received.

In Michigan, for instance, the foreclosure process can take up to 213 days. The lender must contact a home owner on the 31st, 61st and 91st day of late payments in addition to other efforts contacting the home owners.  To stop foreclosure in Michigan use this time to work with your lender on a loan modification. Failure to act could lead to a deficiency judgment. Most states, permit deficiency judgments that grant the lender rights to sue a borrower to recover the difference of the loan when the home is sold at auction. If the sheriff sells a home with a mortgage balance of $150,000 for $135,000 the lender could come after the borrower for the $15,000 difference unless they have previously agreed to a “short sale“.

Know Your Options

A homeowner can request that the lender allow a short sale of the property. Why would a lender agree to less than they are owed?

When you negotiate for a short sale, you do have a few things on your side. First and foremost, the lender deals in money not real estate. The lender does not want your home, and a small loss to them is preferable to having your home on their books. Most states also require the home owner (i.e. the bank after it has taken possession through foreclosure) to fulfill certain legal requirements with regard to the property like cleanliness and functioning utilities. This means that the home and its upkeep are a continued drain on their books over time.

In some states like California and Arizona, a lender cannot claim a deficiency judgment against you (in other words they get the house but nothing more). In other states like Michigan, where there are no laws that prohibit deficiency judgments after a foreclosure auction, you could still be held liable. The lesson is to make sure that your short sale agreement legally absolves you of all debts owed to the lender, leaving no room for deficiency claims against you.

Prioritize your Budget

There are home owners facing foreclosures who made relatively small mistakes in the market but found themselves on the wrong side of the dip. Many Americans however, are facing a credit crunch of their own creation, by maxing out their credit cards, and borrowing against their home for the latest consumer goods. This is tough medicine to swallow, but the sooner you face facts the sooner you can get a handle on your situation. Pay down your credit cards and rid yourself of what’s called “revolving debt.”  Try DIY projects at home, reusing materials and spending less on new things.

Consult with housing counselors from the US Department of Housing. The service is free and they can offer you advice and solutions custom tailored to the laws of your state. Legal representation is also an important tool to fight foreclosure. In every state the laws are different so it’s important to know what can be done in your state to help you survive foreclosure.

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Foreclosure Survival Guide, The: Keep Your House or Walk Away With Money in Your Pocket Foreclosure Self-Defense For Dummies Mortgages For Dummies The Mortgage Encyclopedia : The Authoritative Guide to Mortgage
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