Top 10 Mistakes People Make During Foreclosure
Foreclosure is the process by which the bank takes your home as collateral for not paying your loan. It can be a long and difficult process for many homeowners, and is often fraught with problems. Read on for the top 10 mistakes people make during foreclosure.
- Ignoring calls from your lender: The foreclosure process can take several months and during that time, your lender may attempt to contact you on numerous occasions. You may think if you ignore the problem it will go away, but it won’t… and not talking to your lender may be the worst thing you can do. If you avoid contact with the lender, you may miss options to save your home, or you may cause your lender to expedite the foreclosure process
- Not trying to negotiate or restructure: Many homeowners believe if they can’t make their payments, foreclosure is inevitable. Lenders, however, usually want to avoid foreclosure. You may be able to restructure your loan- especially with the money available from economic bailouts in 2009- and save your home, or at least avoid foreclosure.
- Not considering all your options: While restructuring a loan is one option, there are several others as well. For example, if you declare Chapter 13 bankruptcy, that may stall the foreclosure process. You may even be able to keep your house by getting on a payment plan for your other debts and getting current on your mortgage payments. Before deciding foreclosure is a foregone conclusion, you should at least explore other possibilities and options to see if they make sense for you.
- Letting the property go into disrepair: When most people begin having problems paying their mortgage or see foreclosure on the horizon, they stop taking care of the property. This can make it more difficult for a short sale. It can also make it more difficult for the bank to sell the house, possibly resulting in you being on the hook for more money even after a foreclosure. While you don’t want to sink a lot of money into home repairs on a home that is being foreclosed on, you also don’t want to let the property completely fall apart- especially if there is a chance you could stop the foreclosure or negotiate some other type of deal for your bank.
- Doing damage to the property Some homeowners become angry when they learn the bank will be foreclosing and do damage to the house, stripping the pipes or fixtures or pouring cement down the drains. This is a big mistake that can have serious legal consequences if the bank opts to report the vandalism.
- Not considering a short sale: A short sale may be a way out of foreclosure that is advantageous to both you and the bank. In a short sale, you find a buyer who is willing to buy your home, albeit for less than what is owed. You then present the offer to the bank and get them to agree to accept this money as full payment on the debt. This can still hurt your credit, but not as much as foreclosure, and you will avoid the legal judgment against you that occurs in a foreclosure.
- Not saving money: When you find out you are being foreclosed on, or when you stop making mortgage payments once you know a foreclosure is coming, you should make sure to save the money that was going towards your mortgage. You may need this to find a new place to live, especially since it might be difficult to rent or buy a home with the black mark on your credit from the foreclosure.
- Avoiding facing reality: When you know you are going to be foreclosed on, you need to begin preparing. You will need to secure a new place to live and get packed and get help moving your belongings. The sooner you face the fact that foreclosure is inevitable, the sooner you can start taking are of all these details so you don’t find yourself scrambling or without a way to move and a place to live when you are ultimately evicted from your home.
- Not seeking help: A lawyer who specializes in foreclosures may be able to help you stop the foreclosure or at least negotiate with your lender to avoid further legal problems. Getting help is often a good way to ensure you don’t end up facing legal problems you didn’t expect.
- Not fully understanding the legal implications of foreclosure: Many homeowners think foreclosure is the end of the situation and that they can simply walk away. In some states, unfortunately this isn’t true. The bank may be able to come after you and get a deficiency judgment if the house sells in the foreclosure auction for less than what you owe or if they can’t find a buyer to pay what is owed. This means you could still end up having to come up with the money to pay the difference between the home’s value and your loan amount if you live in a state that allows these deficiency judgments. Make sure you find out about this before foreclosure happens so you can get try to negotiate a short sale or otherwise get the help you need to minimize the chances of a deficiency judgment against you.