What to do when a foreclosure notice arrives

Foreclosure - this single word can strike fear into the heart of any person regardless of their status in life. Society tends to think that if a person is facing foreclosure, they are deadbeats who lack motivation and refuse to pay bills on time. However, the reality is that many homeowners who are facing foreclosure are hard-working people who have fallen on hard times during a financial crisis.

While the primary cause of foreclosure is failure to pay a mortgage or tax bill on a home, the underlying causes are far more complicated. Those who have been laid off from good paying jobs, people who have gone through a costly divorce or those who have had medical issues that have weighed down their financial abilities all may be facing foreclosure. Combine this with the less than scrupulous mortgage lenders and brokers who preyed on unsuspecting homeowners and told them they could help them get out from under homes they could not afford, and you have a recipe for disaster.

Regardless of the reasons that a person is facing foreclosure, what is more important is to understand what to do once the foreclosure notice has arrived in the mail. Although the initial reaction may be to ignore it, this is not only lacking in sense, but it will not make the problem go away.  Here are some things that a homeowner can do when they receive a foreclosure notice.

Evaluate current financial position

The first thing that a homeowner should do when they receive a foreclosure notice is to sit down and honestly evaluate their current financial status.  Before taking any additional steps, a homeowner must be certain they can continue to pay their mortgage, taxes, insurance and continue to maintain the home.  Once a homeowner determines they can resolve their finances to maintain the home then they can proceed to the next step.

Contact the lender

It is important that a homeowner contact their lending institution when they are facing foreclosure. This is especially helpful if there has been a financial crisis that has been resolved. Many lenders may be willing to work with a homeowner to bring their mortgage current without needing to pay all of the arrears at one time. Past due amounts may be divided up over a twenty-four-month period (or longer) depending on the lender and added to the current mortgage payment.

Most lenders have a loss mitigation department. Remember, lenders are not in the business of property ownership. Many feel it is in their best interest to work something out with the current homeowner to continue paying their mortgage.

Homeowners who cannot afford their mortgage

For a homeowner who has determined it is not financially feasible for them to continue living in the home, the lender should still be contacted. The homeowner should review their loan documents and see if there is a "deed in lieu of foreclosure" clause in their mortgage.  If there is such a clause, the homeowner should negotiate with the lender regarding any potential deficiency judgment (provided the state allows such a judgment).

While the end result will be the same (e.g., the homeowner gives up their home and their credit is negatively impacted), the drawn out process of foreclosure does not have to be a burden to the homeowner or to the lender.
When lenders refuse to negotiate

While it may be less common, sometimes a lender refused to negotiate. A homeowner may contact FNMA and ask about the programs that are available to help them save their home from foreclosure. Never accept any offer from a person contacting you about saving your home from foreclosure that involves paying a fee. The programs that are legitimate are free to all homeowners and this help should not require payment of any fees.

While it may be tempting to ignore a foreclosure notice, it is very short-sighted. Deciding if there is stable income that will allow a homeowner to keep their home is the first step in deciding what steps to take.  Negotiate with the lender, work with the approved government programs and if all else fails, a homeowner may consider filing bankruptcy to stop the foreclosure process. None of these methods will be effective if the homeowner does not have a stable income.

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