How to Deal With Your Lender When Facing Foreclosure
Tips to stack the decks in your favor
By Tara-Nicholle Nelson, Esq., FrontDoor.com |
Published: 2/01/2008
How Can You Max Out Your Chances of Working It Out?- Explain your financial hardship and why it is/was temporary.
If you lost a job, explain why and give details as to why you believe you will be re-employed soon. If your mortgage rate and payment are adjusting, explain that and show that you made your payments on time consistently before the adjustment. - Demonstrate that you have tried to improve your situation.
Provide proof that you have been job hunting, have reduced your monthly expenses or have taken on a second job or a roommate to boost your monthly income. - Make a specific proposal or specific alternative proposals.
Ask for what you want in verbal and written requests. Call your lender and speak to a representative in the workout or loss mitigation department. Have a discussion with him of what you are considering requesting, then get his name and fax number and issue your request(s) in writing. For example, if you currently have a 15-year fully adjustable mortgage with a current 7.25 percent interest rate for a monthly payment of $2,500, you might request that the lender extend the term of your loan to 30 years, change the interest rate from adjustable to fixed, and drop the rate to 6.75 percent for a monthly payment of $1,900. Consider providing several alternatives which would work for you if the lender cannot or will not agree to your first proposal. - Demonstrate that you are financially able to keep your end of the bargain.
In the former example, show that you now have or soon will have the income required to make the payment you are requesting. - Make your request ASAP.
As soon as you believe you might be in financial trouble and unable to make your payments, call your lender! While it's true that some lenders will want to see you deplete your savings before they buy your hardship story, many prefer to do workouts with people who haven't yet fallen behind; they believe responsible borrowers are more likely to live up to their end of the workout bargain. - Make a show of good faith.
If you are significantly behind on your mortgage, you might need to beg, borrow or steal (well, don't really steal!) to come up with some lump sum as a show of your good faith and commitment to keeping your home. Try to negotiate some payment greater than a month's mortgage payment, but less than the total amount you are behind as your "down payment" on your workout arrangement. Then, pay it -- exactly when you say you will. If you are late making this payment, your lender will lose all confidence that you will comply with the terms of the workout.
While a mortgage workout is less physical than your gym workout, it can be equally advantageous to your lifestyle. So stack the decks in your favor before you make that call, and good luck!
Tara's Tip: When negotiating a workout with your lender and before you agree to any compromise, ask the representative: "How will this appear on my credit report?" Understand the credit implications of your compromise before you agree to it. If the compromise will be reported as a derogatory item, try to negotiate the manner in which your lender will report the arrangement to the credit bureaus. Your goal is to have it reported as "Pays as Agreed," but if you don't get the lender's agreement to do that before you agree to the compromise, you never will.
- Foreclosure is a process, not a thing.
- The foreclosure process has four phases. The terms and length of each phase vary by state.
- A difficult financial situation doesn't have to lead to foreclosure.
- The mortgage lender is not eager to take your house away.
- You can sell your home immediately when foreclosure is looming.
- All is not lost once you get a notice of default.
- A short sale is better than going through foreclosure.
- Foreclosure has major legal, tax and credit consequences.
- Buying a foreclosure property doesn't always mean you'll get a bargain.
- Understanding your mortgage can help you avoid foreclosure.
More on FrontDoor:
Nelson is founder and chief visionary of www.REThinkRealEstate.com and author of "Trillion Dollar Women: UseYour Power to Make Buying and Remodeling Decisions." 