Steps to avoid foreclosure — or at least minimize its impact.

Millions of Americans are losing, or close to losing, their homes. Foreclosures in the U.S. are hitting record numbers. If you’re having trouble paying your mortgage, learn about the steps you can take to avoid foreclosure or minimize your debt after it happens. Quick action is the key to success — it can save your home or help protect your credit rating.

Don’t Walk Away: Consider Your Options

Don’t give up and let the lender foreclose on your home without considering your options. A foreclosure will hurt your credit rating and make it difficult, if not impossible, to buy another home anytime soon. In addition, if the profits from selling your home don’t cover the unpaid portion of your loan, your lender might sue you for the rest.

Your best options if you’re having trouble making mortgage payments include:

• negotiating with your lender
• getting government help
• filing for bankruptcy
• selling your home yourself, or
• giving your home deed to the lender.

These options are described in more detail below.

 Beware of scam artists. People facing foreclosure are often preyed upon by others claiming they’ll “help.” Some homeowners have unwittingly signed documents giving these scammers title to their property, turning the owners into renters. Don’t sign anything without getting a professional opinion first.

Negotiating With Your Lender

As soon as you realize you’ll have trouble paying your mortgage — ideally, before you’ve missed any payments – contact your lender. Now, more than ever, lenders are willing to negotiate with home loan borrowers, if only to reduce the number of foreclosures they’re dealing with. (Some lenders are even taking the initiative and contacting at-risk borrowers themselves.)

Do it sooner rather than later. If you call soon, you may be able to work out a solution with your lender. But if you’ve already missed three or four payments, it may be too late, and the lender may insist on foreclosure.

Possible solutions. The lender may accept partial payments for a few months (though you may have to agree to make up the difference later), accept a late payment, or agree to redo the terms of your loan.

What to say when you contact your lender. Here’s what you should ask for in lender-language. (And by the way, you’ll probably need to get to the right department first — it may have a name like “loss mitigation.”)

• Forbearance. You make a reduced payment, or no payment, for an agreed-upon period of time. Usually, the lender requires you to make up the difference at a later time. The lender is most likely to agree to this if you can demonstrate that you will soon receive a bonus, tax refund, or some other extra cash.
• Loan reinstatement. You agree to make up your missed (or reduced) payments by a specific date.
• Loan modification. Your lender agrees to alter the terms of the loan so that you can better afford the payments. For example, the lender may agree to add your missed payments to your loan balance, to stretch out your loan over a longer term (which will lower your payments but result in more interest over the life of the loan), or to convert an adjustable rate to a fixed rate mortgage.

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The foreclosure crisis has affected many tenants, who learn mid-lease that their landlord has failed to pay the mortgage. But as the meltdown continues, new tenants are becoming the next wave of unintended victims, as landlords continue to rent to new residents in the face of looming foreclosure.

Usually, when a landlord enters into a rental agreement with a tenant while foreclosure is imminent, the tenant has no idea that the rental unit may soon be in foreclosure. Whether tenants have any recourse against their landlord in this situation depends on the type of rental agreement they signed and what the landlord knew at the time of the signing.

What Happens to Tenants When a Property is Foreclosed?

Tenants whose rented homes are the subject of a foreclosure almost always lose their leases. This is because in most states, a mortgage recorded before a lease was signed will wipe out that lease if it’s foreclosed. There are a few exceptions to this rule. In rent control cities with just cause eviction protection, and in Washington, D.C., New Jersey, and New Hampshire, tenants who arrived after the mortgage was signed may keep their leases. (To learn more about this, read Nolo’s article Renters in Foreclosure: What Are Their Rights?)

However, even if the lease or rental agreement is wiped out, the new owner of the property must still follow state eviction procedures in order to remove a tenant from the rental unit. (To learn more about eviction procedures, read Nolo’s article How Evictions Work: What Renters Need to Know.)

But what if the landlord had a pretty good inkling that her ability to pay the mortgage was in doubt at the time she negotiated and signed the lease? Or worse, what if a notice of default had already been filed against the property? Does the tenant have any recourse for the landlord’s actions?

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Don’t start house hunting until you seriously consider how much you can afford to pay. A little advance planning will save you time and money later, because you won’t bid on unattainable houses or apply for loans that are out of your ballpark.

How Much House Can You Afford?

You may hear an old formula that says you can afford a house worth about three times your total (gross) annual income. Don’t rely on this formula, however — it’s much safer to look at your own budget, figuring out how much you have to spare, and what the monthly payments on your new house will be (not just the mortgage — factor in taxes, insurance, maintenance, and more).

Lenders have traditionally wanted you to make all monthly payments using no more than 28% to 44% of your monthly income. In other words, if your monthly income is $2,000, the lender would want you to pay no more than $880 (.44 x $2,000) toward all your debts.

These traditions are, however, becoming less rigid — now, if you have an excellent credit record, a lender might allow you to go more deeply into debt. But you’ll need to use your own common sense, and make sure you leave yourself some money with which to buy furniture, cope with a job layoff, or simply enjoy life.

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For more information please visit: http://www.floridalawattorney.com/