How to Prevent the Foreclosure Bidding Process
- 1). Call your lender as soon as you realize you are unable to make your current mortgage payment. Ask your lender about any loan modification programs that may be available to you. These programs either extend the repayment period on your loan or temporarily lower your interest rate, reducing your monthly payments. Qualifications vary by lender (see ref. 1). Loan modification programs can successfully prevent your property from being foreclosed upon and going to auction.
- 2). Place your home on the market and attempt to sell it. If you owe more on the home than it is currently worth, this may not be an option. However, if you have equity in the home, you can attempt to sell it for the balance you owe on the mortgage. Even if the home is worth more than the current balance on your mortgage, your goal should be to pay off the mortgage before the home goes to auction. You will need a quick sale to accomplish this, and that may require listing the home for less than it's worth and forgoing a profit.
- 3). Negotiate a short sale with your lender. A short sale is beneficial if you owe more on your mortgage than your home is worth. In a short sale, the lender attempts to sell the home for its fair market value. There are no time constraints, as there are when you attempt to sell the home yourself. Considering that the lender is choosing to take a loss, you may still be responsible for the balance you own on the loan. Under the Mortgage Debt Relief Act of 2007, if the bank forgives this balance, you will not have to pay taxes on the forgiven amount as long as the home is your primary residence (see ref. 2).
- 4). Apply for bankruptcy. When you file for bankruptcy, an "automatic stay" is implemented. This prevents creditors from proceeding with legal action against you while the bankruptcy court evaluates your finances. The automatic stay also protects you from losing your home in a foreclosure auction (see ref. 3). If you have a steady income, the bankruptcy court will most likely negotiate a repayment plan with your lender for you. This will allow you to pay off the mortgage in amounts you can afford and keep the home.
- 5). Take out a personal loan to bring your mortgage current. You may be able to obtain a personal loan through a bank or from a friend or family member. Although your mortgage lender has the legal right to demand the full balance of your mortgage as soon as you default on your mortgage payments, most lenders would far prefer to accept the balance you currently owe rather than proceed with a costly foreclosure (see ref. 1). Keep in mind that you will need to budget for the repayment of the personal loan as well as the mortgage.
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