How to Stop Foreclosure on Your Home

There are legitimate ways to stop foreclosure on your home. They don’t work for every homeowner in every situation. But it’s certainly worth your time and effort to research them. This article explains some of the ways you can stop mortgage foreclosure before it starts.

The Foreclosure Crisis Drags On

I saw a mortgage statistic earlier this week that said, as of August 31, 3.3 million homeowners were at least 60 days late on their mortgage payments. Many of these people will be facing foreclosure, as a result of falling behind.

housing-crisis The problem is bad now, but many experts are predicting it will get worse. In fact, some people are anticipating a peak in foreclosures sometime next year, in 2010.

But what’s worse, in my opinion, is that many of these folks don’t even realize there are ways to stop foreclosure altogether. It’s far better to pursue some kind of foreclosure-avoidance strategy (even if you fail) than to ignore these strategies entirely. But there’s the rub, as the great bard once said. Most people do not know what these strategies are to begin with.

That’s where I come in. With this article, I’ll explain some of the things a homeowner can do to stop foreclosure before it turns them into another statistic. I’ll also cover some of the foreclosure-prevention scams you need to watch out for along the way.

How to Stop It Before It Starts

save-house Is it really possible to stop a foreclosure from happening, once you’ve fallen behind on your payments. Yes! It’s entirely possible. That’s the first thing you need to realize. Banks employ several strategies to help struggling homeowners get back on track with their mortgage payments. Collectively, they are referred to as “workout options,” because they help you work yourself out of a hole.

The first thing you need to do is determine which category you fall into. Have you experienced a temporary setback that put you behind on your payments, or can you simply not afford the mortgage anymore. In other words, are your financial problems temporary or long-term in nature? There are different ways to stop foreclosure on a home, depending on which “camp” you fall into.

If you have temporarily fallen behind on your payments, you should ask your lender about workout solutions such as reinstatement, forbearance and repayment.
If you have a permanent inability to make your mortgage payments, you could stop foreclosure by selling the house (perhaps through a short sale), or by modifying the loan to make it more affordable.

Like I said earlier, these are not the only ways to stop a home foreclosure from happening. But they are the most commonly used strategies. So you need to learn everything you can about these options.

In the two bullet points above, I introduced some terminology that might be new to you. Here are some basic definitions of those terms.

Repayment — If you suffered a temporary financial setback that caused you to miss some of your mortgage payments, then repayment might be a good option for you. Basically, you would make your regular payments going forward, plus a little extra to make up for the missed payments. You would do this until you were current on the loan. This is one of the simplest ways to get caught up and stop foreclosure from happening. Ask your mortgage lender about this option.
Forbearance — This is another way to get caught up on your missed payments, and it’s often used together with reinstatement (described below). Here, the lender would temporarily reduce or suspend your payments due, with the agreement that you would make a lump-sum payment in the future to get caught up. This could be a good option for someone who expects to have some extra revenue coming down the pipe (a tax return, a job bonus, etc.). The FDIC is currently pushing for this, on behalf of unemployed homeowners.
Reinstatement — This is often used as a follow-up to forbearance, which is described above. This is where the mortgage company accepts your back payments as a single lump-sum payment. It’s a big financial word for paying back what you owe. But unlike a repayment plan, where you would make up for your debts gradually, reinstatement generally happens with a lump-sum payment.
Short Sale — A lot of homeowners in America are hit by a double whammy right now. They can no longer afford their mortgage payments and need to sell the home, but they are also upside down in their mortgages. A short sale is often the only way to stop foreclosure in such situations. This is where your lender lets you sell the home at or slightly below market value, even if that means they have to accept less than the full amount you owe them. The goal here is to sell the house quickly, to prevent further losses.
Loan Modification — You’ve probably heard this term mentioned in the news a lot lately. Currently, the Obama administration is pressuring mortgage lenders to modify (restructure) home loans, to make them more affordable for struggling homeowners. You can learn more here.

Foreclosure Prevention Scams to Avoid

Caution

I’ll close out this article with a word of warning. There are many companies out there who would love to “help” you avoid foreclosure, and they will charge an up-front fee for their services. Ninety-nine percent of the time, these are scams to be avoided. These companies often promise to “work with your lender” on your behalf, to modify your loan in some way. But by the time you realize they’ve done nothing for you, they’ve already made off with your money.

Many of these scammers wrap themselves in the American flag and try to appear government in nature. Their websites will be red, white and blue, and they often include “Obama” in the name of the website. They want you to think they are somehow affiliated with the government stimulus programs, when they clearly are not.

If you scroll to the bottom of these websites, they will usually include a disclaimer in fine print. It will say something like this:

“[Company Name] is a privately owned company, and is not endorsed by or affiliated with any government agency.”

Now why would they need a disclaimer like this one? Why would a visitor think they were affiliated with the government? Could it be the pictures of Obama plastered all over the place? Could it be the official U.S. government seals, or the quasi-governmental website names?

The Federal Loan Modification Law Center was a prime example of this kind of deceptive marketing. At least, up to the point it was shut down by the FTC. The website (fedmod.com) is no longer up, but it used to look a lot like a governmental website. That, along with the upfront fees they were charging for “services” rendered, is why the government shut them down. These are hallmarks of foreclosure-prevention scams, and they should always raise a red flag in your mind. By the way, FedMod.com was owned by some dirt-bag lawyer named Nabile “Bill” Anz. Google his name, and you’ll see the incredible web of deceit this guy has woven!

The bottom line — tricky advertising is nothing new. I just thought you should know what’s going on. Here’s some more information about mortgage modification scams. And here’s an FTC news release about the same thing.

To quote the FTC bulletin:

“The FTC announced five law enforcement actions against operations using deceptive tactics to market their mortgage modification and home foreclosure relief services, including firms that marketed their ’services’ by giving the false impression they were affiliated with the federal government.”

Like I said, it’s a disturbing trend.

How to Find Legitimate Help

What’s a homeowner to do? There are so many companies out there that claim they can stop foreclosure on your home. But which ones are legitimate, and which ones should you avoid. My advice is to speak to a HUD-approved housing counselor instead. They even have counselors who are trained in foreclosure avoidance, specifically. You can find one near you by using this search tool on the HUD website.

Here’s what you should take away from this lesson. Are there ways to stop a home foreclosure from happening? Yes. Are there legitimate sources of help, to help you explore your options? Certainly. Are there thousands of people trying to scam homeowners in distress? You bet! But now you’ve been educated on all of this, so you can proceed smartly and safely. Good luck.

Foreclosure | Brandon | October 22, 2009 8:11 am