Stop Foreclosure

Updated 8/14/17, Originally Published 2/26/16

Takeaways

• Start working on a solution before you are late on your payments
• Talk to a Realtor and your lender if you are concerned about making your mortgage payment
• There are resources to help you keep your home – use them!

1 in 6 homes sold on the MLS in the Fort Hood area is a foreclosure.

I’ve detailed previously why there are so many foreclosures in Killeen, TX and the Fort Hood area, even in a healthy, neutral market.  The two main reasons for the relatively high foreclosure rate are:

1. The VA loan and 100% loan-to-value ratios mean that homeowners are underwater on their loan the day they move in.
2. There are many new built homes in the area which lose some value after move-in, also leaving owners with less equity.

Foreclosure is a terrible financial event – the equivalent of bankruptcy, and will be reported on your credit for half a decade, during which time most people will be unable to buy again.  Your credit card and auto loan rates will skyrocket, employers will see your foreclosure history, and military security credentials can be lost (and with it, your military employment).  On top of that, you can get taxed on the amount you owed to the bank after a foreclosure.

If you are or think you may be faced with the prospect of a foreclosure, here are a few rules you must follow:

1. Start exploring solutions as soon as possible.  It is much easier to get relief before you start falling behind on payments than after.
2. Continue making payments.  It is never a good idea to cease making payments, at any point, in any of these strategies. Never.
3. Take care of the home.  Damaging the home’s value only hurts you.  Especially don’t damage the home in spite, as the banks can and will hold you financially accountable for any damage to the property.

The following are strategies to consider, roughly in the order I might recommend trying them.

Avoid the Situation

This may not be helpful if you’ve already bought your home. But if you are reading this and considering buying a home, be sure to budget smartly! Buying a home is often a great idea I wouldn’t discourage you from, but don’t let it leave you house poor, leading to financial issues or even foreclosure in the future.

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Cut Expenses

You’ve also probably already done this, but it bears mentioning. Your mortgage is probably one of the most important payments you are making. It may be time to make sacrifices in order to make your mortgage payment.

You also may need to prioritize which payments you are making if money is tight. Failing to make payments on other items like credit cards or cars is bad, but you generally won’t get thrown out of your home if those are late or go into default. However, I recommend talking to a financial consultant first before failing to make a payment on anything.

Rent out your Home

Is there any way you can use your home to make more money?  Even if you are still living in your home, you might consider renting out a room to make ends meet.  Or perhaps you can downsize into a smaller, cheaper rental and rent out your current home to help pay the mortgage.  Keep in mind the math when it comes to a rental.

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Sell

I’ve worked with some people who were preparing to stop making the payments, or who were already behind, but had enough equity in their home that they could have sold and walked away owing nothing. That’s why it’s always important to begin this process by talking with a Realtor so that you know all your options. Maybe the market has improved in your neighborhood since the last time you spoke with an agent. Contact an agent today!

Contact Your Lender

Your lender is a good point of contact if you are expecting to struggle making a payment.  Don’t let a missed payment be a surprise to them.  Instead, call when you are still current on your payments and start explaining your situation.  They can be a good resource for seeing what in-house options they may have to help you avoid foreclosure.

Home Affordable Refinance Program (HARP)

This program is for homeowners who are current on their mortgage, but cannot refinance their mortgage to get better, more sustainable terms.

Home Affordable Modification Program (HAMP)

Unlike HARP, HAMP is not a refinance but a negotiation with the bank to modify your loan terms to make your mortgage more affordable.  This might include extending out the loan term, for example.  Your mortgage must be at least 31% of your monthly gross income to qualify.

Short Sale

This is a way of selling your home while working with the bank to pay them less than they are owed on the home.  The bank is the main player here, and it is a difficult process, but far superior to a foreclosure.  Your credit is still impacted, but not to the extent that a foreclosure would impact it.  A Realtor can help you figure out how to get a short sale done, however you are still advised to avoid it if at all possible.

Work with an Investor

Reputable investors are real estate’s Swiss Army Knives – they have a tool for every problem.  But, you also have to get a reputable investor, and know that few of their solutions are going to be perfect. Note that you won’t likely get to stay in the home with most of these options.

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Deed-in-lieu-of-Foreclosure

The banks make the call on this one, but this is essentially surrendering and pleading with the bank for mercy.  Essentially, you are offering to give the home back to the bank if they just “call it good”.

When is it Too Late?

The auction.

At the end of the foreclosure process is the auction, where the bank attempts to sell your home to the highest bidder (often themselves).  At that point, you no longer own the home and must leave if you are still living there.  The closer you are to the auction, the fewer your options.  I’ve talked with investors who got calls from homeowners they could have helped, only to find out the auction was just a few days away.  That is often too late.  After the auction, you no longer own the home and will be forced to move out or evicted.  Don’t put off finding a solution.

In some cases, if the bank illegally sold your home at auction or skipped some steps, you can recover your home even after it has been auctioned. However this almost never happens.

What Next?

Talk to a Realtor.  They can give you the best assessment of your home’s value and what your best options are.  I am an agent in the Fort Hood area (Killeen, Harker Heights, Copperas Cove, and surrounding areas) and can advise you on a good course of action.  Contact me below!

Other Resources

• USA.gov
• HUD
• Freddie Mac

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