Suze Orman

5 Ways to Avoid Foreclosure

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There are so many of you out there that are finding yourself in trouble with the home you currently have. You bought a home. You financed it with an adjustable rate mortgage. Now the mortgage is adjusting upwards because interest rates are going upwards. You are finding that you cannot afford to make the monthly payment. You are falling one month behind. Two months behind. And now you’re facing possible foreclosure. The bank comes in and says “Bye-bye we are taking this house from you.” You don’t know what to do and you are finding yourself saying, “Please help me.” So here are five things you can do to avoid a possible foreclosure.

#1. You have an adjustable rate mortgage, rates are going up and you want to stay in this house. Why not right now, refinance to a fixed-rate mortgage. A fixed-rate mortgage is currently at a lower interest rate than a fully indexed adjustable rate mortgage. So just simply refinance. Is it that simple? Yes.

Now, in order to refinance you obviously need to be able to afford it, the closing costs, everything like that. Maybe you find yourself in a situation where you don’t have that kind of money and you can’t do that. What should you do?

#2. There is something called mortgage relief. As soon as you know you cannot make that payment, I want you to call up your lender to tell them exactly what is going on.

It is possible they will extend the period of time that they would normally foreclose on this house... normally they will come in after three months and, BAM your house is foreclosed on. They will give you some mortgage relief and extend that foreclosure period amount of time, but you have to talk to them. They will give you some relief from your mortgage.

#3. You can also do something called forbearance.

You do not have the money to make payment so they allow you to not make the payment. However they still charge you the interest rate you would be owing on that mortgage payment, so its not like your off Scott free, but they might give you a few months where you don’t have to make they payment at all.

#4. Another thing you can do is called loan modification. This is only good for people with good credit scores & income, but are 30 to 120 days late in payment. So you’ve already got yourself in trouble but still everything is all right with you – your credit score is relatively okay. Call the bank and they very well may modify your loan. Maybe give you lower interest rate, extend your payment period, modify what you have so that you can afford to stay in this home.

#5. And the last resort is something called a short sale. A short sale is where you bought a house, maybe you didn’t put any money down on it now you have a loan that has been adjusting up.

At the same time the price value of your house is adjusting down or you are owing more money on this home than, really, what its worth and what you can sell it for.

Rather than the bank spending all the money to foreclose on you, they allow you to sell the house for the less money than what you owe them. You are “short” the money that you owe them. That’s why it’s called a short sale. And therefore they will just simply take the amount of money that you sell the house for and cancel the rest of the money that you owe them. Of course if you do that, you owe taxes by the way, on the difference... but that is the last resort that can save you in this situation. Then maybe you’d be ok.

Truthfully I wish you had never gotten into this situation. But if you did these are five things you can do to protect your money, your house and what’s going on in your life.

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