17 Way to protect yourself from foreclosure trap

Are you unable to pay down your mortgage? Have you maxed out your credit cards and are using them to pay for daily expenses? Or, do you need to choose which bill to pay off first?

Being in any of the above situations can be a warning that things aren't ok with your finances and you need to gear up and take better control over your money.

Now, if there's a mortgage and you don't pay accordingly, you may come across 2 situations:


The lender files a notice of default within 90 days of missing a single payment. The notice of default implies that foreclosure has been declared.

In case you don't pay off the loan within 90 days of filing foreclosure, the lender will send you the Notice of Sale. Within a period of 15-30 days of sending the Notice, the lender will set up the auction.
In order to avoid foreclosure and protect your home from being taken away by the lender, follow the steps given below:



Before lender files Notice of Default


Build Emergency fund:
Apart from a tight budget, maintain some cash flow from your paycheck into an emergency fund. This is to ensure that you have enough cash to continue paying the loan in times of financial crisis.

Cut down expenses:
In case you're having a tough time paying your bills, forget about any kind of extravaganza and find out areas where you can minimize your spending.

Cash-out assets/Take up second job:
Try cashing out assets such as stocks, savings accounts and personal property which if sold off can give you lump sum amount. You may even take up a part time job to supplement your primary source of income.

Avail Counseling service:
If you are in problems paying off your loan, contact a housing counselor for financial advice. There are FHA approved counselors to help you with the following:

Analyze your finances and prepare monthly budget to ensure that you meet daily expenses including debt (mortgage and other loans, if any) payments.

Call the lender on your behalf and discuss about work out options that can help you keep the home.

Protect you from future credit problems before you are too far behind on your mortgage.

Provide information about assistance programs/services in your area You'll find a state-wise list of HUD approved counseling agencies at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. Besides, you can contact counselors associated with the National Foundation of credit counseling or the Association of Independent Consumer credit Counseling Agencies.


Talk to housing non-profit:
You may seek financial advice from a housing non-profit such as HOPE National helpline. The counselor there can help you analyze your financial situation and then take important steps to get out of the mortgage mess.

Refinance the existing loan:
If there's enough equity in the home and you satisfy the lender's guidelines, then refinancing can be a good option. While you refinance , don't just get lured by low initial rates on ARMs or interest-only payments; chances are that you may face even higher payments with these loans once the rates start adjusting.

Emergency Mortgage Assistance programs:
In case you have lost your job or there is loss of income, and you feel it's not possible to pay down the loan, you can make use of emergency assistance programs. Contact your state housing finance authority or the HUD to find out more on such programs.

However, not all lenders/banks will allow for these programs. In case the bank allows, it will send a notice asking you to seek assistance.

Forbearance and Repayment plan:
Through forbearance, the lender may reduce your payment amount or even suspend it for a few months, so that you can get back on track and continue paying as usual. Often this is accompanied by the lender suggesting a repayment plan such that the dues are adjusted with the regular monthly payments after the suspension/reduction period is over.

Reinstatement:
The lender may be willing to accept the entire amount you are behind as a single payment within a specific date. Then you can continue with the remaining debt on a monthly basis.

Loan Modification:
This involves an agreement between you and the mortgage company after which the original terms and conditions of your loan will be modified so that you can afford to pay.

Foreclosure Intervention program:
There are agencies which grant funds to delinquent borrowers and help in negotiating with lenders for payment rescheduling. But one has to qualify for such grants. For instance, your income, reason for late/missed payments or inability to pay, housing ratio and your ability to pay in future etc are some of the factors considered here. And, there's a maximum limit up to which the agency can offer the funds.

However, if you have FHA insured loan, you may qualify for an interest-free as well as payment-free loan to pay off the dues and get current on the loan. The loan needs to be paid back only after you've repaid the mortgage.

After lender files foreclosure:


Seek Court Protection:
If you are unemployed or underemployed, you can seek the court protection. In such a case the court may postpone foreclosure for the next 6 months. Within this period, you should try and gather funds to make up for the dues.

File Chapter 13:
You may file chapter 13 bankruptcy and avoid a foreclosure sale. Through this process, you will be able to repay at least a certain percentage of the debt with the help of a trustee-approved repayment plan, that too, within a short period of 3-5 years. Know more….

Sell off your property:
If you no longer wish to keep the home, you may sell it off at a price equal to the fair market value. But while you do so, take help from a realtor or a real estate agent in determining your home value, listing your home and quoting a price for it.

Try for Short sale:
It may happen that you owe more than your home is worth in the current market scenario. In that case, you may negotiate with the lender for a short sale, although it will affect your credit score. Know how short sale works .

Request for Deed-in-lieu:
In case you can't go for a usual sale, you can opt for this method. However, not many lenders initially agree to accept a deed-in-lieu. This is because they are not interested in your home; rather they'd like you to pay down the balance.

In this process, you relinquish your rights, give away property to the lender and get a mortgage release certificate in return. However, this too will bring your score down. Know more….

File Chapter 7:
Filing Chapter 7 will put a temporary stop to foreclosure. However, depending upon state laws, you may or may not be able to keep the home. Know more….


What if none of the options work for you?


In case you fail to make use of any of the options stated above, there's no other way but to let your home go into foreclosure.

However, prior to the court declaring the date of foreclosure, you can redeem the loan by using the right of redemption. This allows you to pay off the mortgage along with the court costs and associated fees. You may even appeal to extend the date of sale if required.

Foreclosure is no doubt the worst choice to look for. So, do not ignore if you are upside down on your mortgage. Simply call up the lender and discuss ways of avoiding the foreclosure trap.

Buy a Foreclosed Home with a Renovation Mortgage Loan

No one likes to hear about people losing their homes in foreclosure, but industry analysts predict that real estate markets across the country will see a rash of home foreclosures through 2008 and into 2009. Many homeowners with sub-prime adjustable-rate mortgages may find themselves in this predicament when their loans reset to a higher interest rate, increasing their monthly mortgage payments beyond what they can afford. When banks foreclose, the properties will go back on the market, and buyers ready to purchase new homes will be able to find some good deals out there.

Mortgage and Renovation Costs Bundled into One Loan Package
So what happens if you find a home in the perfect location that meets your family’s basic needs but requires major improvements or repairs? The answer for that fixer-upper may lie in a renovation mortgage - a lender program that allows home buyers to finance the mortgage and fix-up or construction costs together in the same loan.

How do renovation mortgages work? There are several options available for renovation financing.

In a program available through the Federal Housing Administration, when new home buyers finds a house in need of renovation, they contact a lender that handles 203(k) mortgages. The buyer contracts with a HUD-approved contractor who evaluates the property and determines which improvement projects are most critical. The lender hires an appraiser to determine the value of the home after improvements, and the loan amount is then based on this post-renovation value. For example, if the purchase price of a home is $200,000, and the renovations recommended by the contractor will cost $40,000, the renovation mortgage can be written for the full amount of $240,000. The $40,000 allocated for home improvements is paid out in installments as the work is completed.

Renovation mortgages offer many benefits for borrowers:

They open up more affordable housing options for buyers.
They offer buyers the opportunity to add value to the property right away through the improvements they make.
Closing on one loan instead of two means buyers save time and money - there is no need to pay repeat costs for such expenses as double appraisals, title searches and other costs incurred at closing.
The money for renovations is available up-front so buyers can begin projects right away.Interest rates on these renovation loan programs are also comparable to those for conventional mortgages.We do require full documentation from the borrower, but the loan requirements are fairly lenient:

They can be used for a primary residences, vacation homes or investment properties.
They can be used to purchase homes at least one year old in urban, suburban or rural locations.

Planned renovation costs must total at least $5,000.

What renovations would increase my value?

Here are some of the things that help increase the value of your home.

High Resale Value
Siding Replacement - Upscale
Bathroom Remodel - Mid-Range
Minor Kitchen Remodel - Mid-Range
Siding Replacement - Mid-Range
Two-Story Addition - Mid-Range
Attic Bedroom - Mid-Range
Bathroom Remodel - Upscale
Major Kitchen Remodel - Mid-Range

Moderate Resale Value
Deck - Mid-Range
Basement Remodel - Mid-Range
Window Replacement - Mid-Range
Window Replacement - Upscale
Bathroom Addition - Mid-Range
Roofing Replacement - Upscale
Bathroom Addition - Upscale
Major Kitchen Remodel - Upscale
Roofing Replacement - Mid-Range
Family Room - Mid-Range

Low Resale Value
Master Suite - Mid-Range
Master Suite - Upscale
Sunroom - Mid-Range
Home Office Remodel - Mid-Range

Tips on selecting a Contractor

For most Renovation Loans, a contractor is required to do the work. The contractor must usually be licensed and insured. Here are some tips for how to find a contractor.
-Word of mouth. Ask friends or family members who they would recommend. Ask your Realtor®. Contractors with a good reputation are best.
-check the websites of professional contracting/remodeler's associations.
Yellow Pages. If you have to go this way, be sure you do your homework!
Ask for references - and check them.
Do they have experience doing the type of work you need?
Get all estimates in writing.
Check to be sure they are licensed if required in your area.
Ask what professional associations / designations they have. If none, be wary.
Check the Better Business Bureau.


Helpful Sites
Contractor.com - Find a contractor- by zip code
National Association of Remodeling Industry (NARI) - Find a contractor
Better Business Bureau - Check them out!

Real Estate Professionals

Close More Deals/The Renovation Loans Advantage

Even in an active market, a house that needs work can be tougher to sell. Let your buyers know they have financing options that include the funds necessary to make a "fixer upper" into a dream home.

There is almost nothing you can’t do with a renovation loan, since this is one of the rare cases where as long as the market value is supported, we will consider the value of the home to be the purchase price PLUS the cost of the work to be done. Hundreds of additional buyers would consider buying homes that need work if they knew they could purchase, renovate and finance the improvements with one loan. Think of the possibilities in marketing homes in older neighborhoods as “Eligible for Renovation Finanicng”. Paint the picture for them, what would this look like with an updated kitchen, bathrooms, new carpet and paint. The possibilities are endless. You just have to show them how it can be done.
We can help. We are happy to counsel any of your buyers on the benefits of renovation financing. It will open their eyes to a whole new set of possibilities.

What is a renovation loan?

What's different...

Loan are based on after-improved value and condition
Defects can be addressed after closing.

Repair costs can be included in the loan and completed after closing
Most loans require the property being financed to meet certain conditions. Any defect in the property – from leaky roofs or bad furnaces to torn carpet or peeling paint- can stop the loan from closing. You need to address all of these defects (before closing) or find another house. For some homes, these defects are minor and easily handled. For others, it’s just not possible. The seller may not be willing or able to do the repairs necessary to put the home in closing condition. You may not be willing or able to do them either, especially before closing. In that case, Renovation Lending can save the day. The cost of the work that needs to be done to the home can be financed into the loan amount and put into escrow (a special holding account) at closing. The loan closes with the property ‘as is’. After closing the work is done and paid for with the money that was set aside in escrow. In the end, you get the home you’ve always wanted.

One loan, one closing, one payment

FHA 203(k) and Conventional Home-style loans are available

Loans from $40,000 to $822,700 (Total of purchase & renovation)
Minimum renovation of $ 5,000.

Can be almost any house/any condition 1-4 Unit properties only (can convert from multi-unit to single or vice-versa, so long as final property is 1-4 units)

Can include almost anything: Remodeling, Additions, Renovations, Conversions, well & septic systems

As-is condition doesn’t matter: Renovation Loans are based on after-improved value & condition
Can include both necessary repairs and ‘wish list’ items as well

Loan size only limited by what you can afford, loan limits in your area and comparable property values in the area

What's different....

What's different...

Loan are based on after-improved value and condition
Defects can be addressed after closing. Repair costs can be included in the loan and completed after closing Most loans require the property being financed to meet certain conditions. Any defect in the property – from leaky roofs or bad furnaces to torn carpet or peeling paint- can stop the loan from closing. You need to address all of these defects (before closing) or find another house. For some homes, these defects are minor and easily handled. For others, it’s just not possible. The seller may not be willing or able to do the repairs necessary to put the home in closing condition. You may not be willing or able to do them either, especially before closing. In that case, Renovation Lending can save the day. The cost of the work that needs to be done to the home can be financed into the loan amount and put into escrow (a special holding account) at closing. The loan closes with the property ‘as is’. After closing the work is done and paid for with the money that was set aside in escrow. In the end, you get the home you’ve always wanted.

One loan, one closing, one payment
FHA 203(k) and Conventional Home-style loans are available
Loans from $40,000 to $822,700 (Total of purchase & renovation)
Minimum renovation of $ 5,000.
Can be almost any house/any condition
1-4 Unit properties only (can convert from multi-unit to single or vice-versa, so long as final property is 1-4 units)
Can include almost anything: Remodeling, Additions, Renovations, Conversions, well & septic systems
R As-is condition doesn’t matter: Renovation Loans are based on after-improved value & condition
Can include both necessary repairs and ‘wish list’ items as well
Loan size only limited by what you can afford, loan limits in your area and comparable property values in the area