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HUD Foreclosure Help - Myths And Facts
The Outlook For Some Looks Grim
Many people are losing their homes to foreclosure and they find themselves looking for a helping hand wherever they can find one. Unfortunately, a lot of misinformation is spread which makes untangling ones financial rift that much more difficult. This article will take a look at the foreclosure help being offered by HUD to see if it might help you through these difficult times.
One thing we don't want to do here is offer false hope. As such, this article will be blunt and to the point, while offering up information that will hopefully steer those about to enter the process of foreclosure in the right direction. To illustrate my point I will tell a story about a family that isn't real, but is representative of people like you and me.
The Disappearance of the American Dream
Mary and John got married ten years ago. Like most Americans, they found getting a home loan rather easy - and having two children even simpler. A bi-level ranch in rural Pennsylvania attracted their eyes, and at $150,000 it was a steal. Better yet, they received great financing ... 4.9%! With a payback on their mortgage of $650 a month, John and Mary found it easy to keep up with payments and have enough left over to live a comfortable life with their children.
However, no dream lasts forever...
John was laid off from the steel mill two years ago. At the time, he saw it as a nice vacation and a chance to get odd jobs done around the house. So, he took their savings and fixed the porch, the roof, and anything else in need of mending as Mary continued on working part time at the local orthodontists office. The layoffs never lasted long, so there was no expectation this one would be different.
But it was ...
Months went by as John's unemployment prepared to run out. The word recession was in the air, but it felt more like depression, with all of their savings spent. Mary now worked fulltime at her job, but John's benefits would soon run out. Now, instead of fixing the house, he spent his days staring at a newspaper that held no jobs for a former steelworker. The closing of the steel mill on page one was confirmed John's worries ... things weren't going to get better any time soon.
As money grew more scarce, bill collectors called for payment on old debts. John and Mary fought constantly, not out of anger with one another, but over the frustration of raising two children in a house that would soon no longer be theirs. They needed a miracle ... and John thought he had found it.
HUD Foreclosure Help
A friend that had worked at the mill told him how he had read on the internet that HUD was giving away free money to help homeowners. When John asked if his friend had seen it with his own eyes, he responded 'no', but the articles seemed true enough. Some even asked for money to get the process started ... that unsettled John, as no one should ask to be paid to offer a free service ... John was right.
Never one to trust the internet, John went to an old lawyer friend of his to see what he could find out. He asked Mary to come along, but she decided to stay home with the kids that day as she had grown to doubt anything or anyone could save them from losing their home.
The Office Visit
Sam Whitaker was the name of the lawyer John went to visit, and Sam was as friendly and witty as he had been in his younger years .. at least until the word foreclosure was mentioned. At that point, Sam grew somber and invited John to sit down.
'As the house was originally purchased through HUD,' Sam said, 'you may receive help on your foreclosure from them, but it's a lifeline at best and there are no guarantees.'
Sam went on to explain HUDs role in the process, which is as follows:
HUD insures the loan, which allows the lender to provide the mortgage without any risk. However, this doesn't guarantee the house will always be yours. If you default on the loan then HUD pays off the mortgage and the house then belongs to the government. They then offer the house up for sale to cover their losses.
Of course, it works out better for everyone involved if you can continue paying your mortgage and you do have some meager leverage as a homeowner under HUD.
How Your Lender Might Help
Typically, all HUD will do is talk to the lender and see if they will work with you on the mortgage. Sometimes this involves pushing payments to the back of the term, which is basically extending your loan. Quite often, the lender will ask for just the interest portion of the payment and then add on the full payment at the end of your loan term. This process compensates the lender for the 'inconvenience' of missing a payment.
Another possibility is refinancing, where the loan is taken out again for a longer term, which can make the monthly payments lower. As HUD loans are typically given at a low rate to begin with, this often doesn't reduce the debt load by much.
Finally, your lender may forgive several months of payments altogether, but this is extremely rare.
How HUD might help
The foreclosure help HUD offers comes in four flavors:
- Financial advice
- Trying to negotiate with your lender to provide you with time to catch up on your payments
- A partial claim
- A Pre-foreclosure sale
The first two options are obvious, with HUD acting as adviser or negotiator. They offer no guarantees, but what small mint juleps they do offer might help you get out of your financial quagmire.
The third option, a partial claim, is one many misconceive as a gift ... it's not. It's also not within your power to ask for it. A partial claim is where the lender notifies HUD that your mortgage is 4-12 months past dues and asks HUD to make amends on the debt. Provided many different requirements are met, HUD will pay off what you owe and make you sign a promissory note, which is a promise that you will pay it off over time. Also, you will be immediately responsible for all upcoming payments, so this option won't be offered unless you are financially solvent.
The fourth option is one that few are aware of. A pre-foreclosure sale is when the owner sells the property before it's fully foreclosed. We'll look into this option more down below.
A Pre-Foreclosure Sale As An Option
Yes, it's losing the house ... but it also salvages your credit rating. Here's how it works:
First, your account must be at least 2 months past due. Next, the house must be appraised and the appraisal must fall within HUDs guidelines. Finally, the house must be sold within 3-5 months.
Are the gears ticking? Yep! That's 3-5 months to get your finances together. During that time you won't be making any payments on your mortgage, so this gives you time to financially prepare yourself to move!
For many that seems like a poor route to chose, but if you have exhausted your other options it's actually a good move, as it allows you to move into a less expensive home and basically start over. Of course, you'll probably be renting someone else's home at this point, but your family will have a place to live and your finances will be a bit less stretched ... especially with that 3-5 month easter egg that will roll your way.
A New Dream Begins
John and Mary gave up and pre-foreclosed on their house. In four months it sold and they moved into town with the kids into an apartment. Though a bit cramped, the rent was $200 a month less than they were paying on their mortgage, and now that John has found a new job they are saving up money again ... including these four months of payments they saved by not paying on their mortgage.
In time, they will save enough to put a down payment on another house, and since John and Mary's credit didn't take the powerful hit of a foreclosure, in a year or two they will once again have the credit they need to take another shot at home ownership.
That's part of the American dream ... falling down to the ground and picking yourself back up again. We did it during the great depression, and we will do it again.
A Plan Of Action
Remember, HUD is there to help, but they aren't there to pay off your debt. As such, if you find yourself falling behind contact your lender immediately to see if something can be worked out.
Next, If the lender refuses to help, contact HUD to see what they can do to help.
If that fails, then consider a pre-foreclosure on your house as a final way out ... and I do mean final, as it constitutes giving up on your home. However, as survivors, we sometimes need to do what we must to survive.
A Small (But Important) Note
While researching this article I was looking for videos to better convey some of the information. At one point I found what I thought to be a great article explaining foreclosure scams, but as I watched on I realized the video was a scam itself. As such, I replaced it with another video from a reputable source and found our firsthand just how unscrupulous some of these con artists are.
Deal only with your lender or HUD when resolving your foreclosure issue, as other people have too much too gain from your loss. Only HUD and your lender share your loss if it occurs, which is why they have the best interest in saving your home.
I hope this article helps many out there who are in need!