14 Apr 5 Tips Every Homeowner Should Know to Avoid Foreclosure
By Whitney Barkley
If you’re having problems paying your mortgage, you aren’t alone. Across the country, homeowners are struggling to keep their heads above water in a recovering economy. Whether it’s because of a job loss, mounting medical bills, or a home that’s now worth less than you paid, the personal and financial stress of foreclosure can be overwhelming. Here’s what you should know to avoid foreclosure.
- Know how foreclosures are handled in your state.
Too many borrowers assume that foreclosure law is the same from state to state. Know the law in your state and, more importantly, know your rights in foreclosure. Don’t assume that the foreclosure prevention strategy that worked for your Facebook friend in Massachusetts will work for you in Mississippi. In some states, called judicial foreclosure states, mortgage companies must have the approval of a judge before they can sell a home at foreclosure. In others, a home can be sold without the approval of the court. Working with a legal services attorney or a housing counselor approved by the U.S. Department of Housing and Urban Development (HUD) can help you better understand the laws in your state.
- Talk to your lender. Call them and answer their calls!
In 2009, the Obama Administration created the Home Affordable Modification Program (HAMP), designed to help struggling homeowners stay in their homes. While not everyone qualifies, a HAMP modification can lower your monthly mortgage payments to 31 percent of your gross monthly income. Even if you don’t qualify for HAMP, there are other ways your lender can help you resolve your mortgage delinquency. So be your own advocate! Ask your mortgage company to review your options. Waiting too long may disqualify you for some programs. After you have contacted your lender, call once a week to confirm that you are being evaluated for a loan modification, and keep records of every conversation with your lender. Make sure that the mortgage company has everything they need to make an informed—and affordable — decision for you and your family.
- Get help for free.
Free HUD-approved housing counselors, on average, have a higher success rate than homeowners trying to obtain loan modifications on their own. These counselors are trained in the loan modification process and know precisely what banks need to make a decision. Counselors are also able to help you draft a hardship letter, assemble a realistic budget, and help explain your options if your application for a loan modification is denied.
- Watch out for scams.
Never pay for a loan modification. Any extra money in your budget should be put into a savings account and used to pay your mortgage or to help you and your family transition into a rental home. Be especially wary of any company that guarantees a loan modification. No one, not even the best HUD-approved housing counselor, can guarantee that you’ll get one. You can get more information on loan modification scams, or report a scam, at loanscamalert.org.
- Plan ahead for a possible transition out of your home.
Sometimes, not even the best housing counselor or attorney will be able to save your home. But as difficult as foreclosure may be, leaving your home without a plan makes life even harder. Think ahead. Where can your family go? Do you have the money to rent a house or an apartment? Will you need assistance? Will your children need to transfer schools? Being prepared for the worst is essential. Too many people exhaust all of their financial resources trying to stay in their homes and when foreclosure comes, find themselves unable to afford alternative housing. Plus, there are tax consequences for foreclosures and loan modifications, so consult a tax expert about what you might owe next year.
Whitney Barkley is an Equal Justice Works AmeriCorps Legal Fellow at the Mississippi Center for Justice. Through her service as an AmeriCorps Legal Fellow, Whitney has focused on foreclosure prevention and assisted homeowners throughout the Gulf area fight legal proceedings to help keep their homes. Equal Justice Works is a national nonprofit that creates public interest law opportunities for law students and attorneys to provide pro bono legal services to vulnerable communities and causes. Mississippi Center for Justice is a nonprofit, public interest law firm committed to advancing racial and economic justice. Supported and staffed by attorneys, community leaders and volunteers, the Center develops and pursues strategies to combat discrimination and poverty statewide.