When You Need To Avoid Foreclosure

The American housing market has slipped over the edge of what appears be a bottomless abyss, and up to two million homeowners who were swept up in the home buying frenzy between 2000 and 2006 are now being swept toward that abyss. Is there a way, if you are one of them, for you to avoid foreclosure?

There may be, if you know what you are doing. But your ability to avoid foreclosure will depend, to a very large extent, on the reasons why you have fallen behind in your house payments. Is your current lack of funds a temporary setback, with a specific date at which you know you will once again become solvent?

If so, and you can provide solid proof that your finances will shortly be looking up, you can approach your lender and ask about negotiating a grace period during which your monthly house payments will be lowered, as a way to avoid foreclosure. The formal term for the relief you are seeking is a Special Forbearance, and to have a chance for qualifying, you will need to provide the specific details of how you expect to get caught up on your mortgage.

Taking a home equity loan is another way to avoid foreclosure, but will only be available if you have lived in your home long enough, and made enough of your house payments, to have accumulated a significant amount of home equity. If you bought into the real estate bubble of a couple of years ago, you probably won't qualify.

Your home equity is the total amount of cash which would be left if the money you still owe on your mortgage were to be deducted from a current appraisal of your home's value. Taking a home equity loan to avoid foreclosure means that you will refinance your existing mortgage with a new one, cash out the home equity, and use it to pay off the balance on the earlier mortgage.

If you're lucky, you'll be able to get a home equity loan at an interest rate lower than that of your previous mortgage, entitling you to lower monthly payments. But you must be absolutely certain, before taking this route to avoid foreclosure, that you will be able to stay current on the new loan, or you will end up right where you began. So do your best to negotiate the most favorable terms you can.

If you don't have sufficient equity in your home to qualify for a home equity loan, but your missed mortgage payments have not had time to influence your credit rating, you might consider a traditional loan to avoid foreclosure. If you do, limit yourself to borrowing only as much as it takes to get you current on your house payments, because this kind of loan will usually carry a hefty interest rate.

If, however, your credit record has already been damaged by your failure to make your house payments, how about turning to family or friends? That may be a last resort, and if it's not an option, you may have to accept that you will lose your home. But you can still avoid foreclosure.

How? By doing your best to sell your home while you are still in the pre-foreclosure process. You will give up you home, and you may not walk away with any cash to show for your efforts, but if you can keep a foreclosure off your credit record, you will be in a much better position to get a mortgage on a more modest home.

Finally, the only certain way to avoid going over the foreclosure cliff is never to buy more house than you can realistically afford, no matter what your creative home lender tires to tell you. You need to have a house which will shelter, and not stress you, and the only way to do that is to get one with payments you can manage even if your finances take a hit for some other reason!