Avoiding Foreclosure After the Holidays
But this kind of spending can get you in trouble, the kind of serious trouble that can prevent the mortgage from being paid and risk your home in the process.
Of course, some people find themselves facing foreclosure (or at least, delinquent housing payments) for other reasons that are not so jolly. Medical problems, divorce, and other lump-of-coal life experiences often wreak havoc with homebuyers’ ability to make the mortgage on time.
As embarrassing as such a situation can be, it isn’t the time to keep quiet about it. A call to your bank or their collection agency should be your first step, according to Adarsh Sangani, Vice President of Loan Servicing and Quality Control for Fremont Bank.
“If you went out of control on your spending and you ran out of money and now January comes, calling is the best thing you can do,” he says.
That tendency to clam up can actually make the situation worse. “A lot of times, when borrowers have trouble, they just stop calling the bank. When people don’t call the bank, they have no idea what kind of hardship you are going through. You really need to pick up the phone, call the bank, and tell them what the problem is,” he explains.
Sangani says that that doesn’t mean everything will automatically be better, but in most cases, the bank will try to work with the borrowers to make the best of the situation.
Sometimes, that might mean a temporary forbearance, allowing borrowers to pay less or skip payments. In other instances, it might require the home be sold, but done in a way to do the least amount of harm to the borrower.
At the end of the day, the bank will probably try to figure out the best alternative, Sangani explains. “The bank doesn’t want to foreclose on the property.”
That foreclosure process, however, starts as soon as payments fall behind by 30 days. That follows a long list of requirements financial institutions must follow to pursue payment or foreclosure. While that gives borrowers some time, the time runs out very quickly, so Sangani urges homeowners who are already falling behind to contact their bank as early as they can.
Sangani says one thing borrowers aren’t likely to get is a schoolmarmish lecture about not managing their finances. While banks want borrowers to be educated about money and make good financial decisions, they also understand that even people who handle money well make occasional mistakes.
“When you go delinquent,” he says, “it’s not the end of the world. Call the bank and be truthful about it. Chances are, the bank will assist you in every way they can.”
If borrowers are fairly certain that they won’t be able to keep the house, Sangani says contacting the financial institution is still very important.
“A lot of people have the mentality that the real estate market is always rising, and they can let the house go to foreclosure and still come out ahead. But it’s not a smart thing to do, because it affects your credit rating. Borrowers who do that will have a hard time getting a new loan, and it will definitely lower their FICO score.”
By contacting the bank, Sangani points out, borrowers might be able to work out a deal using a real estate agent to sell the home and turning over the proceeds so the loan is paid, thus salvaging their credit score.
Once a borrower has contacted the bank, Sangani says, there is usually some request for documentation. So for example, if a borrower says they fell behind due to a divorce, the bank may request sufficient documentation to prove that is actually the case.
If an agreement is reached where the borrower is offered the ability to make lower or no payments temporarily, or other terms that depart from the loan, Sangani says adhering to the agreement is key. “Any agreement that is made, the borrower absolutely must abide by it.”
Not to sound like a broken record, Sangani feels he can’t say the same basic advice enough: Call the bank. Call the bank. Call the bank.
“For the folks who call when they are in trouble, the bank can usually help them nine out of ten times,” he concludes.
