This article is a short basic guide about foreclosure. It aims to explain what foreclosure means. It also aims to provide advice on how to avoid foreclosure and will offer tips for those facing foreclosure.

What is foreclosure?

Banks can take possession of or even a sell off a mortgaged property if the borrower fails to meet his or her payments. This legal procedure known as foreclosure is very serious in that it can stay on your credit report for seven years and could affect your chances of obtaining credit in the form of credit cards, loans and hire purchase agreements in the future.

Foreclosure Prevention

Having your home foreclosed can be devastating and incredibly stressful. Ideally, it is better if you can stop going down that road by obtaining as much knowledge as you can about foreclosure and about how to prevent it from happening in the first place. Here are some useful suggestions about foreclosure prevention in the first instance.

1. Read the Terms and Conditions

When buying a home, always make sure that you understand what is stated in your mortgage documents and if you are unsure of anything always ask questions BEFORE you sign anything. Be aware of the different mortgage rates that are available and also make sure that you understand the terms and conditions of those rates.

2. Have Savings

Always make sure that you have at least six month savings put aside for a rainy day, such as losing your job, or becoming ill, as you should be able to have the funds to pay your mortgage until you get back on your feet. You may wish to consider mortgage payment protection insurance. Shop around the various banks to get quotations and the best deals.

3. Buy a Home you Can Afford

Make sure that you buy a house that you can actually afford. One of the biggest mistakes is to buy a property that is outside of your budget.

Foreclosure Options

1. Contact your lender

If you do run into difficulties, please, please, please, contact your mortgage lender straightaway if you are having trouble making payments as the earlier they are informed, the more options you will have to help remedy the situation. Keep them informed about the hardship you are experiencing and be honest about what you can afford. Banks would want to see proof of your situation so keep records of your medical documents, pay decrease information or redundancy notices.

2. Get Advice

Talk to a housing advice counsellor to get support and to find out what options are available to you. Or look up foreclosure websites. There are many foreclosure prevention programmes on the internet that enable you to take charge of your situation, without paying enormous fees to professionals.

3. Re-Modify your Loan

Find out if your mortgage lender is able to re-modify your loan without extra costs. There are different types of loan modification programmes, so speak to your lender about which options are available to you.

4. Lender Mitigation Service

Speak to the Lenders mitigation department for assistance as they will be able to discuss options that are available to you.

The following are more drastic options:-

5. Sell Your Home.

If you have some equity and the luxury of time you may wish to hire a real estate agent who specialises in distressed property. If you follow this option, make sure that your outstanding loan and other associated costs are covered in the sale price.

6. Short Sale Your Home

If you are in negative equity in that you owe more than your home is worth, then you may wish to consider a short sale on your home. A short sale is when you get the mortgage lender to accept less than the stated mortgage. Speak to a short sale specialist to advise you on this process.

7. Offer your Bank a Deed In Lieu of Foreclosure

This option enables the lender to take control of the Deed and cancel the mortgage. One of the benefits of this approach is that it does not get reported as foreclosure to the credit agencies. Deed in Lieu of Foreclosure option was once popular with lenders as it enabled them to sell the property and keep any profit if there was any built in equity. Today, fewer banks will accept a deed in lieu.

8. You Can File for Bankruptcy

If you want to save your home, you are behind with payments and you have exhausted other options, filing for bankruptcy will temporarily hold off the sale of your property whilst the bankruptcy process is being investigated. Both bankruptcy and foreclosure will damage your credit score. However bankruptcy is the preferred option to repair a poor credit score. The reasons are as follows:-

A foreclosure will affect your credit rating for several years as you will not get rid of your other debt, and could make obtaining a mortgage very difficult in the future.

Whereas bankruptcy, although will damage your credit score, will allow you to be free from debit enabling you time to rebuild good credit a lot sooner.

Author Bio: Penny Sterling is committed to providing advice and help for those facing foreclosure. http://www.foreclosureadviceandhelp.com

Category: Finances
Keywords: what is foreclosure, avoid foreclosure, help for foreclosure, foreclosure prevention,