There are few things more ominous than finding a foreclosure notice on your door. This is just the first of many warnings though and foreclosures can (and legally must) take many months to complete so take a deep breath—you do have some time to try and stop the bank from taking away your home. What are your first steps?
For most people the priority is to save the home, so you should look into loan modification programs and ways to use your equity to try and delay or halt foreclosure. Loan modification programs are provided by the government under the Making Home Affordable (MHA) program.
Differences Between HARP And HAMP
The main programs are the Home Refinance Modification Program (HARP), the Home Affordable Modification Program (HAMP), and the Home Affordable Unemployment Program (HAUP). HAUP is exactly what it sounds like—if you’ve lost your job due to the recession and are as a result struggling with your mortgage, then HAUP may be able to help you get the bank to modify your loan.
For most people whose hardships are caused by reasons other than unemployment, HARP and HAMP would be the appropriate programs to check into, but if you’re already facing foreclosure you probably want HAMP. Qualifying for these programs isn’t easy, but if you manage to get through either you could find yourself with a modified mortgage that you can afford, which will halt the foreclosure and save your home.
Which program do you use?
If you are not behind on payments, you try HARP, but again, if you’re already getting foreclosure notices, you are presumably behind already. This being the case the program to apply for is HAMP. If you are allowed to get a loan modification through HAMP and successfully complete a trial period on the modified loan, you may also qualify for the Second Lien Modification (2MP) program, which could even further reduce what you owe.
Another tactic to stop foreclosure is to try using the equity that’s already in your home to pay for your mortgage. A government program available for seniors is the reverse mortgage program. This frees up equity in the house as a loan which can be used to pay for the mortgage.
Two Methods To Try
For other homeowners a home equity loan or line of credit may do the same trick. For any of these methods to work though you’ll need to own sufficient equity in your home. You also need to check your contract to see if you need to have homeowner’s insurance should your equity fall past a certain point.
That would be several hundred dollars a month and could add to your financial burden. That’s why home equity related solutions are best for people who own large amounts of equity in their homes.
If none of these methods work, you are down to either HAFA or bankruptcy. A lot of homeowners overlook bankruptcy as a possible solution, but it can dissolve your debt and help you get a fresh start and may not be a bad decision depending on your situation.
Consequences Of Bankruptcy
The consequences of bankruptcy depend on various factors including the type you choose to file and which state you are going to file it in.
HAFA is the government program which helps homeowners to get a deed in lieu of a foreclosure or a short sale. Both these processes stop foreclosures and can give you the chance to buy another home in the next seven years under Fannie Mae rules.
If that’s your aim, then you might benefit from HAFA. If that’s irrelevant to you, you might actually be better off with defaulting strategically on your loan and allowing the foreclosure to proceed. It could take years and during that time you could save a lot of money, nor do you necessarily forfeit the “cash for keys” deal typically offered in short sales.
This deal can be offered in foreclosures as well to help coax the owner to leave the home in a timely fashion.
Don’t be rash when you make your decision, and don’t make it based on the opinions of other people. Lots of people are in the same position as you these days and there is no shame in choosing whatever option is best for you and your family, regardless of whether that is a foreclosure, bankruptcy, or a short sale or deed in lieu.
Before any of that though, try to save your home first!
