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Bad Things can Come to Those Who Wait

5 Ways to Cut Back on Your Expenses to Help Avoid Foreclosure

Every Little Bit Helps

Friday, October 13, 2006 By Bruce Voris

Five Ways to Cut Back

Foreclosures are on the rise nationwide, and the Phoenix, Arizona area, including greater Maricopa County, is not immune from this trend. There are over $200 BILLION worth of mortgages in foreclosure right now, nationwide. This is a staggering statistic. Those in this unfortunate situation often have to try to sell their house, but can find it impossible to do before the foreclosure auction occurs. Many people facing foreclosure find it necessary to cut back on monthly expenses to avoid foreclosure.

Before you even try to cut back, be sure to find out where you are spending your money now. Keep a log, save receipts, review your checkbook, whatever it takes, but make sure you find out where your money is going every month. It's amazing how many of us don't know where the money goes! Then, categorize these expenses into Needs and Wants. Now, consider these five ways to cut your expenses to help avoid foreclosure:

1) Have a Savings Account.
Even if you have to start small, be sure you are putting something away for a rainy day. There are some banks that are now offering debit cards (which access your checking account, so you're not adding to your debt) whereby when you use them they round up the purchase to the nearest dollar and put the difference in your savings account. This is an innovative concept. However you do it, find some way to pay yourself each month, even if you have to cut out some of those wants.

2) Call your Credit Card Companies to see if they'll accept lower monthly payments.
Often they'll be willing to work something out with you to keep the payments coming in. This is a key area since there are some credit cards that have recently doubled their minimum payments. If you can't afford the new payments, it's much better to try to work something out with them than not paying them at all.

3) Don't Be Late on or Miss your Mortgage Payment.
This is CRITICAL. You must get in the mindset that your mortgage payment is your single most important payment every month! Many people who miss that first mortgage payment NEVER recover and they eventually wind up in foreclosure. Cut out the Wants, have a garage sale, send back the big screen, even get rid of the car with a payment in favor of a less expensive one you can pay cash for, whatever—but at all costs pay that mortgage payment first each month!

4) Don't Deny that You have a Problem.
Don't ignore the problem. And don't be embarrassed about it—you're NOT alone. Bad things do happen to good people. If you have a spouse, be sure to tell them what's going on. This is not the time to be the "Lone Ranger". You need everyone involved to work on improving the situation together.

5) Don't Be Afraid to Ask for Help.
There are resources out there that can help you if you will seek them out. Try everything before you give up and find yourself in foreclosure, even if it means borrowing money from Mom & Dad, other family, or friends.

You don't have to be a victim. You can take action and prevent the foreclosure from happening. You can take the steps to reduce unnecessary expenses so that you are in a better monthly financial position. Educate yourself on your available options and take action! If you seek legal advice, be sure to check the attorney out to make sure they're reputable. Take the above steps and don't give up—you can do it!

5 Reasons Not to Wait to Take Action to Prevent Foreclosure

Bad things can come to those who wait

Friday, October 20, 2006 By Bruce Voris

Reasons Not To Wait

Homeowners facing foreclosure should not wait to take action to prevent their foreclosure. Taking action right away can prevent foreclosure, protect your credit, and save lots of money and trouble now and in the future. Different states in the US have different time periods relating to foreclosure. Some are "short states", which means that a family only has 21 days from the time of their foreclosure notice to when the house is sold at auction. Others are longer states, where a family has 4-6 months. Arizona, where my business operates, is a 90-day state, meaning that once a Notice of Trustee Sale is recorded, the family only has 90 days to resolve the situation before the house is sold at the trustee sale (auction). Often, especially in longer states, homeowners facing foreclosure feel like they have lots of time, so they wait and do not take action to prevent their foreclosure from happening and to keep their credit standing from being trashed. If nothing is done until a day or two before the auction, it is usually impossible to persuade the lender to postpone the foreclosure sale at that point. There's just not enough time to put together the research and paperwork to send to the lender to convince them to hold off. However, there is great benefit to taking action right away to prevent the foreclosure:

1) Once a Notice of Trustee Sale is recorded, that means that usually the borrower is already 3 months behind on the mortgage. Waiting another 3 months to do something, even if the foreclosure is prevented at the last moment, still has a VERY NEGATIVE effect on the borrower's credit report.

If one were to wait this whole 6 months without making any mortgage payments, there would most likely be the following mortgage lates on the credit report by the end of the foreclosure process:

  • 30 days late 6 times
  • 60 days late 5 times
  • 90 days late 4 times
  • 120 days late 3 times
  • 150 days late 2 times
  • 180 days late 1 time

Then, of course, after all these lates, there would be the big one: FORECLOSURE. Hopefully it is clear that time is not your friend and waiting like this can ruin your credit report quickly. It can take as much as 7 years for all this to disappear from a credit report, and during that time it will be either impossible to qualify for a new mortgage, or if you do, it will be much more expensive due to the much lower credit score.

2) The damage to one's credit rating can make certain options impossible, such as refinancing. If there's not a lot of equity in the home, a lender typically is not loaning money based on the security in the property itself, but more on the creditworthiness of the borrower. With trashed credit, this option becomes impossible, or at least extremely expensive. With poor credit and a pending foreclosure, if a lender does offer a refinance loan, the interest rates will be very high and the costs to get into the loan (e.g., points paid up front) will be very expensive. The resulting payment would also likely be much higher than the old one. How do the banks think the homeowner can afford the new payment when they couldn't afford the old one? This option is often impossible for most people facing foreclosure, especially those who wait too long to take action, and who have little equity in the property to begin with.

3) The impact of trashing your credit report can be felt in other areas of your financial life. For example, if you have credit cards with balances, if you read the fine print you'll find that many of these lenders can increase your interest rates based on your payment history to other creditors. In other words, they periodically check your credit to see how you're doing with your other accounts. Once your credit report has all these lates on it, the credit card companies see you as a much higher risk, so they'll raise your interest rates and therefore your minimum payments will go up drastically.

4) In most real estate markets, waiting too long to take action means c ertain options are off the table—impossible to do. For example, many people in "hot" real estate markets where properties sell fast (like Arizona used to be—now we're a more normal market again and it's taking longer to sell) believe they can list their property with a realtor, sell it quickly, pay off the mortgage and move on. What many people fail to realize is that it may take three months or more to find a buyer and get a contract on the property. Then, the contract usually calls for a closing in 30-45 days, so there's another month or two. If the homeowner facing foreclosure waited until the Notice of Trustee Sale was recorded or longer to start this process, the house will be sold at foreclosure auction long before this sale can be closed. Plus, if the house is over-leveraged (not much equity), there is no flexibility to lower the price to get a quick sale, since the proceeds would not be enough to cover paying off the loan, interest, penalties, late fees, closing costs, and realtor commissions. Such a homeowner would wind up having their house sold at auction and their credit trashed for many years.

5) Waiting only increases the costs later. Many people don't realize that for every month that goes by once mortgage payments are being missed, interest and fees are piling up and compounding. Also, once the foreclosure process starts, there will be legal fees and other penalties the lender will charge. Many people who plan to borrow money from family or friends to reinstate their mortgage loan think they only need the two or three or four month’s worth of missed payments. They fail to get a reinstatement letter from the bank showing all of these extra charges that have to be paid to bring the loan current. When they do find out, the family members and friends are surprised and sometimes unable to help when they learn that the amount needed is twice what they thought. Many lenders refuse to accept partial payments—if the amount sent in is not the full reinstatement amount, they'll actually send the check back and proceed to foreclosure auction. This situation gets worse every month that someone waits and does not take action.

I know this sounds bleak, but there is good news—the problem can be solved, the foreclosure prevented, and the credit damage minimized—IF ACTION IS TAKEN RIGHT AWAY! Acting sooner rather than later keeps more options open, minimizes costs, protects your credit, and shows future creditors that you took positive action to create a brighter future for yourself and your family. Don't wait - as you can see, the consequences can be terrible.

Bruce Voris : Bruce Voris is a regular author of articles on foreclosure in the Phoenix, Arizona area. He is a trusted Member of the National Association of Foreclosure Prevention Professionals.