Proactive Tips for Avoiding Mortgage Foreclosure

by Paul from Colorado

Ask Kate to discuss proactive tips for avoiding mortgage loan foreclosure: These are backward times when foreclosure and strategic default are as common as buying a house. In some states like Michigan, Florida, Nevada, and Arizona, maybe even more so. That's why I recommend developing a proactive plan to save your home. Now meet Paul who is over his head and going broke making his house payments.

Paul Asks Kate About His Unaffordable Home Mortgage

Hi Kate,

I had several investment properties foreclosed upon between 2006 and 2009.

I was unable to modify the loans and the payments simply became impossible.

My credit is otherwise very good. However, I am stuck in a 6% loan on a house I have 30% equity in.

I have never missed a payment on the residence.

It is worth too much to get an FHA loan. We owe about 370K on an original note of 432K. The house is worth about 650K.

I am in over my head and going broke making the payments. Any advice?

Kate Answers: Proactive Tips for Avoiding Mortgage Foreclosure

Dear Paul,

I have some thoughts on the matter. It boils down to this.

Can you afford the mortgage payment?

I'm not going to discuss the obvious ways to deal with unaffordable home loans such as:

1. Deed in lieu of foreclosure
2. Short sale versus foreclosure
3. Negotiating directly with the lender
4. Loan modification
5. Traditional mortgage refi

But I hope you'll come back to follow these links. They all lead to a wealth of information on my website. You never know. One sentence may give you that needed ah-ha moment!

The Inevitable Foreclosure Process

For now, though, I'd like to discuss a proactive approach to avoiding foreclosure.

If you are truly going broke and don't expect an adequate increase in your income in the near future, enough to support your house payment, give this matter some serious thought before you end up losing your 30% equity to a needless foreclosure.

First though, back up a moment. Let's say you decided to throw in the towel and cease struggling to make the house payments. Since the robo-signing debacle, mortgage foreclosure is a lengthier process. So most likely you'd have several months before eviction. You could draw out the time even further by declaring bankruptcy.

However, the foreclosure process would be inevitable not withstanding the fine print. (For example, if the bank was unable to produce the original promissory note.)

But ask yourself if you want to live a life that hides from mortgage collection calls, the unexpected knock on your front door, and threatening letters.

Be Proactive Before the Bank Threatens to Seize Your Home

Maybe you want to gamble and see what happens. Maybe you can stay in your home for a couple of years without making a mortgage payment. But here is what I don't recommend - Hiding your head in the sand like an ostrich and drawing out the foreclosure process for a couple of years.

Why do I say that? It will have a detrimental affect on most homeowners' lives, waiting for the other shoe to fall.

So, I'd make a reasonable plan to fight for your home. I'm certainly not advocating to give up. But the plan should include increasing your monthly income or paying off other debt by selling toys that are collecting dust in the garage.

If that's not possible, consider selling the house while you have equity versus taking $3000 for a deed-in-lieu of foreclosure. Or as some foreclosed homeowners are discovering, getting a whopping $400 from a settlement.

Of course, I know nothing of your personal situation other than what you've written. But being proactive before the bank seizes your home will always make sense.

Good luck and best wishes to you Paul,

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