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Stop foreclosure before it starts, before Notice of Default

Thu Mar 13, 2008 03:03PM | By Tony

See more in Personal Finance | Permalink | Email | Comments (0)

The best way to stop foreclosure is to prevent your mortgage holder sending you Notice of Default. Notice of Default is pretty much the beginning of end of your home ownership. Once you have defaulted 3 monthly mortgage payments in a row, your lender will send you the Notice of Default, or NOD, which is recorded by a County Recorder and the fact that mortgage is in default becomes public information. You can still stop foreclosure, but it is going to cost more nerve cells and money.

Obviously, your lender does not want to foreclose, especially today when foreclosures are often quite difficult to auction, but still will file a Notice of Default to protect its interests, if necessary. So if you sense you can't make mortgage payments, call your lender. Don't procrastinate, be embarrassed or ignore letters from your lender because those responses will make the situation worse, not better. Depending on your particular situation and hardship circumstances, you can stop foreclosure process and here are some options you and lender may work out -

Enter into forbearance agreement by working out a repayment plan that is affordable for you.

Debt forgiveness is very rarely happens, but occasionally, lender may allow you to skip a payment or two, as long as you bring the rest of your payment situation current.

Work out a repayment plan, spreading out the missed payments over a longer term. For example, if your payment is $2,000 a month, the lender might let you add $200 a month to each payment for 10 months until you bring mortgage current.

Modify you loan by changing the terms of your mortgage, e.g. freezing the interest rate of your Adjustable Rate Mortgage (ARM) before it increases, or lower the interest rate to a more manageable. A lender might also extend the amortization period from 20 to 30, or from 30 to 40 years.

Lender can add the defaulted payments to your mortgage balance, as long as you have sufficient equity and meet its lending guidelines. Your loan balance will be increased to include the defaulted payments and the loan will be re-amortize. However, with the falling home values you better have quite a bit of equity to stop foreclosure, using this method.

Get a partial claim arranged by getting a separate loan. Certain government mortgages contain provisions that allow you as long as you meet specific criteria, get another loan, which will pay back the missed payments.

Whatever you do, remember that to stop foreclosure, you have to move swiftly. Time is not on your side.

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