Whether you are just about to lose your home or the foreclosure is days away, there is something that you can do. A lot of homeowners in trouble simply refuse to admit that they have a problem. If you can’t make your bond payment, or if you are struggling to pay other bills… you have a problem, and need to deal with it. Your creditors and lenders may not seem sympathetic, but they do want to be paid and are willing to be part of the solution if you will make them an offer.
Timeline
If you are behind on your loan payments, you should begin receiving mail from your lenders first scolding you and later on encouraging you to work something out. If you cannot work out an arrangement with the lender, then the lender will file an action to foreclose or to hold a trustees’ sale. Right up until the day of that sale, you have the ability to reinstate your loan or to negotiate some settlement with the lender. Various banks offer different assistance programs to distressed homeowners who want to sell the property before foreclosure.To remedy the situation, the homeowners must pay off all the debt plus any fees associated with the foreclosure.
Avoiding Bad Loan and Predatory Lenders
Some lenders specialise in lending to homeowners who are in financial trouble. Debt consolidation can be described as loans when you “take several smaller, hard-to-pay loans and rolling them into one big impossible-to-pay loan.” Every time you borrow money, there are additional charges that make your debt bigger. Borrowers are often fooled by teaser interest rates that jump to a much higher rate if you are even one day late on your payments. If you are having trouble paying today, rather than getting a new loan, renegotiate with your existing lenders.
Assessing Your Current Situation
It’s easier to give advice than objectively make a rational decision about personal finances. Many financial decisions can be emotional. If you are under stress, you may think that you are in worse shape than you really are.
Okay, so let’s look at your current situation objectively:
1. Increase Your Cash Flow
If you currently have enough income to pay your bills, you might be able to get each of your creditors to either forgive your back payments or add your back payments to your account if you can show them that you are able to keep them current. If you don’t have enough money to pay your bills, ask yourself if there are any bills that you can eliminate.
2. Control Your Expanses
Cut Your Car Expenses
Car expenses are a major pocket drain. I drove an old Opel Corsa I bought for next to nothing until I could afford to pay cash for a better car. It only had one working window, so I was rarely asked to drive anywhere. If you are struggling
financially, consider downsizing your means of transportation, all the way down to a bicycle, if you can. Eliminating all the expenses your car produces can make a major swing in your cash flow.
Start Eating In
Eating out and buying prepared food costs several times what it cost to buy and prepare your own food. If you don’t cook, learn. It’s a good survival skill. Shop only once a week and make a list of what you need before you go. Study the store flyer and buy things on sale. My grandmother and I would shop only on Thursday and would go to three different grocery stores, buying only what was on sale at each store. She raised four boys during the Depression and could make a soup or stew with just a little meat that was a healthy and tasty meal. Occasionally take yourself and family out to a meal, and it will be a real treat.
Tighten Your Other Expenses
Another significant drain on cash flow is your utility bill. Learn all you can about ways to save money by setting your thermostat a little higher or lower, checking to make sure no plumbing is leaking. A little insulation or weather stripping can do a lot to keep cold air in or out. Although many now see air conditioning as a necessity, it was a rarity a generation ago, so you can live without it. Make it a game to see how much you can save compared to the same month a year ago. If you buy most things either with a credit card or by writing a check, go through your old bills or last year’s check register and look at every dollar you spent. Now write down the things you wish you had not bought. Were any of them impulse buys, things that seemed like a good
idea at the time but that you regretted later? Learn from your past, and don’t repeat your mistakes this year. If you are a smart buyer, not an impulse buyer, you can save one-third or more of all that you spend.
3. Increase Your Income
It’s easier and faster to cut expenses than to increase your cash flow, but by doing both you can make a big change in your financial situation.
Work more hours. If 40 hours a week won’t pay the bills, either try to work more hours on your current job or take on another job. Many work two nearly full-time jobs.
When you are working, you are not spending. Sometimes you can even eat free. Some very successful people I know used to work a full-time day job and then work another job at night. Nearly every successful business owner at one time worked 16 hours a day or more to get his or her business started. It was a sacrifice being away from the family for long hours, but these people did what they had to do to pay the bills.
When I started in the business, I not only worked long hours, I shared every expense that I could. I sublet my office to two others, and the three of us shared the expense of the rent, secretary’s salary, phone bill, and even the copy machine. We all did what we could to minimize our expenses because we had little cash flow.
If you own a house and have an empty room, you could share your house expenses by getting a roommate. In fact, some clever students rent houses with several bedrooms and rent the other bedrooms for enough to live there rent-free.
There are endless ways to make extra money from home, from making phone calls for pay to tutoring others in whatever you are good at. I have made a part-time career in teaching others about money. You may have another gift like cooking, or photography, or computers that you could teach others.
4. Stop Paying Interest
Poor people pay interest, rich people collect it. Which do you want to be? Poor people not only pay interest but they pay at a higher rate. When wealthy people borrow, they get the best possible rate, but the poor borrower will pay a high rate. Not fair? Maybe, but you can’t change the system, you can only change the way you acquire things. Set a goal to first stop paying interest, and then to become an investor so that you can start collecting it.
The first step in not paying interest is to stop borrowing. If you have balances on your credit card and are paying interest, lock them away (or cut them up). If you have a big car loan, do what you need to do to get rid of the car and the loan, then get the transportation you can afford to buy for cash. To get rid of your debt, target the smallest one, and pay it off. As soon as you pay off the smallest one, target the next smallest one, and pay it off until you are out of short-term debt.
You can use this strategy to pay off all of your debt. Owning your home free and clear will give you a sense of satisfaction and accomplishment for the rest of your life.
Debt is not necessarily a bad thing. Investment real estate is often financed. The key is not to borrow more than the property’s income can repay.
Serious Questions about Your House Today
What is your house worth today? You don’t need an appraisal. You can get online on your local property appraiser’s Web site and check what other properties have sold for in your neighborhood this year. As an alternative, call Realtors who have property for sale in your neighborhood and ask them for a list of recent sales.
If you did not own your house, would you buy it again today? If your answer is yes, but at a lower price, then you should try to keep the house but ask the lender to rewrite your loan for a longer-term or at a lower interest rate, to lower your payment.
Why did you buy it? Is the reason that you bought it important enough to fight to keep it? If so, fight! If not, if the house is a tremendous burden, offer to deed it to the lender in lieu of foreclosure.
Can you afford to keep it with the income and other expenses that you have today? Are you willing to work more or to sublet part of your house to increase your income to a level (or cut other expenses) that will allow you to keep the house?
Communicating with the Lender
Keep good records of your payments and correspondence with the lender. You might assume that an institutional lender would keep perfect records and never make a mistake. But you would be wrong. People at the bank are entering your payments, and any time people are involved, mistakes are made.
You probably pay your payments with a check or the bank is making direct withdrawals from your account. Either way, you should be able to reconstruct from your bank statements how much and when you paid the bank.
Take the time to review your payment history before you contact the lender. If you begin making partial payments or make a lump-sum payment to bring the loan current, keep careful records. Sometimes a borrower will make two or more payments with one check and the lender will give him credit for one month’s payment and use the rest to pay down the principal.
If you are behind in your payments, the lender will typically write to you and give you a number to call regarding your account. Much of your communication is likely to be over the telephone. If you are able to reach an agreement to modify your payments, the lender typically will mail or fax you a copy of the agreement with the terms spelled out. Make a copy of this agreement or scan it, and put it someplace safe.
Things That You Can Do to Help the Lender
When you ask lenders to help you by modifying their loans, they have to be able to document that the only way they are going to be repaid is to modify your loans. They will be looking for documentation from you that proves your case. If you want your payments reduced, then you need to show proof that your income is not sufficient to make the current payments. Perhaps your payments have adjusted upwards, or maybe your income has dropped.
If you are asking them to accept a short-sale offer, then they are going to want proof that the properties around you are selling for less than what they sold for a year ago.
If you want to deed your house back to the lender, it will want proof that this option is your only one other than bankruptcy. A document that you have no other assets and that your income cannot support the house.
Buying or Renting Another House
If you are able to sell your house or give it back to the bank, you should be able to negotiate a month to move to give yourself a chance to find another house to move into. Ironically, after you get out from under your old house loan, you become a better credit risk. Although a banker will not be anxious to make you a new loan for
about two years, many landlords and sellers will be willing to rent or sell you a house. If the real estate market is depressed in your town, it’s a great time to buy. Look for a landlord who will allow you to rent with an option to buy or for a seller with a vacant house who will sell to you on terms.
Buying using a lease option typically will give you the lowest monthly payments. With a lease option purchase, generally, the seller still pays the taxes and insurance. This keeps your payments lower than they would be if you bought the same house, even using owner financing. The advantage of buying with owner financing is that you can often get a longer-term. Your credit is probably damaged, so any chance of a conventional loan in less than two years is remote. If you can negotiate a five-year term or longer with owner financing, it will give you a good chance to get your credit in order and shop for the best long-term loans. The third option is to find an affordable rental and begin saving your money for the down payment on your next house. The advantage of renting is that you can get a lot of house for less than what it would cost you to buy, and it’s safer. If the roof or your furnace fails, you have little or no responsibility. If you can find a long-term rental, you can stay in one house, avoid the costs of moving again, and save up for your next home purchase.
Conclusion
There are always foreclosure opportunities. When the housing market is soft, there are extraordinary opportunities to buy at deeper discounts and on terms that are rarely available in a normal market.
In one year, you might acquire what may take five years in a normal market. Have a buying plan that keeps you from overbuying and becoming a distressed owner yourself. Have a plan, and follow it: Buy the best properties you can afford at deep discounts and on great terms, and enjoy and share the wealth you accumulate. You can profit from buying foreclosures and help owners in your community who have no other options.
