How to Avoid Foreclosure?
Not a lot of homebuyers expect to go into foreclosure, but due to the recent economic downturn, it is a consideration or situation a lot of people in Fort McMurray are in. Just know that you are not alone. Hopefully you’re reading this before actually ending up in foreclosure. But even if you’re already in foreclosure, as long as you’re still in the house there may be a way for you to continue to stay in it, long-term.
First things first: What is foreclosure?
Foreclosure is the legal means in which your lender is enabled to repossess or take back your house in order to get their mortgage money back and settle any outstanding fees. Apart from wilful mortgage fraud, where someone has no intention of making payments, most homeowners face foreclosure due to a sudden event that leads to them being unable to make their mortgage payments on time. The most common reasons include:
Loss of second income
Excessive debt obligations
Illness or injury
Death in the family
Divorce or family problems
Inability to pay adjusted/higher mortgage interest rate
Unexpected major home maintenance expense
How can you avoid foreclosure?
Being proactive is the best way to avoid foreclosure. Lenders do not want to foreclose but they will file a Notice of Default to protect themselves if it comes to that. While it might be hard to admit that you are starting to run into financial issues, if you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender. Keep an open line of communication. Ignoring their calls or notifications will only make things worse. Depending on your situation, here are some options you or your lender might suggest for you to avoid foreclosure:
Extra time to make up for payments
Lenders might agree to wait before taking legal action against you and let you work out a repayment plan (forbearance) that is affordable for you.
If your mortgage has an adjustable loan, you can ask the lender to change the interest rate to a more manageable level. A lender might also extend the amortization period which will lower monthly payments. Some lenders may offer to spread out missed payments over a longer term.
Re-calculate and refinance the mortgage
If you have enough equity and meet the lender’s requirements, the lender may increase your loan balance to include the missed payments and re-calculate the loan. If you are sure that you will be able to keep up with payments, another option is to refinance by consolidating your mortgage with other debts that have 20% - 30% interest, like credit card debts. By paying them off, and increasing the mortgage amount, you will then decrease your overall monthly debt load.
Mortgage Default Insurance
If you have made a low percent down-payment on your home then you may get some temporary protection from foreclosure since Canada’s 3 default mortgage insurers carry programs that help struggling homeowners to temporarily pay interest only, or to forgive some of your payments. Those insurers are:
- Genworth Financial Canada
- Canada Mortgage and Housing Corporation
- Canada Guaranty Mortgage Insurance
Short Sale Programs
Some banks and mortgage insurers offer a short sale programs. Genworth being one of them. It is critical to speak with your bank or mortgage company to see what their options are. Banks and insures do not want you to foreclose so they will work with you as well.
Accurate property evaluation is crucial for you to know what your home is worth so it can be priced correctly, as well as what your resources are if you have to sell your home. Call me as I will give you a free, no cost or obligation assessment on your home. We can talk about what your options are.
If refinancing is no longer an option, homeowners can attempt debt settlement. There may be a way for you to settle your debts to the same extent that you would in a consumer proposal, but without actually using a consumer proposal, so that the marks on your credit record are less severe. Consumer proposal is a good way to negotiate your debts down. Remember that lenders don’t enjoy foreclosing on people. It costs them a lot of overhead, legal fees and ongoing costs. They’re looking for a way out of the current mess, just like you are.
If you have reached the point where you require a non-traditional solution that will solve your financial problems and keep you in your home. Here are some options that you can look into.
Equity sharing requires a partner, and it can keep you in your home if that is your primary intention. In this situation, the partner will pay to stop the foreclosure and may even start helping you with part of your monthly payment. In exchange for this, your partner will now own a certain percentage of your home, or of your home equity.
You can look for private financing from other people especially retired people who are looking for ways to get better returns on their investment.
Renting out your house
You could rent your house out for more than your monthly mortgage and property tax costs. This means that you would have to move and be approved to rent somewhere else - a tricky option if you have bad credit. So another similar option to this is to rent out a part of the house, and hope that the added income helps you to once again meet your monthly obligations.
Again, prompt action is key to ensure that you get the best chance to avoid foreclosure. The earlier you recognize the mortgage issue, the faster you will be able to make the best decisions to pull you out of possible foreclosure. First time home buyer? Check out this helpful guide to familiarize yourself with the home buying process. Looking for foreclosed or company owned homes? Click here. Thinking about selling your home? Get a FREE market analysis from me. I’m always here to help.