Overwhelmed, frustrated, anxious, sad, angry – those are the raw emotions that accompany a foreclosure on your home. The questions that will keep you up at night are, “How did I get into this mess? Will I lose the house? What are my options? Who will help me? Will my family ever recover financially?”
First of all, it’s important to remember that you’re not alone. About 34 million U.S. households, or roughly one-third of the nation—took money out of their homes in 2004 through 2007 by refinancing or borrowing against their equity, increasing their debt load. Many people who bought when prices were high used nontraditional mortgages. Chances are they were expecting to refinance or sell at a profit later. Others may have overstated their income levels in order to qualify without the mortgage broker’s knowledge. The point is, there are plenty of other Americans who are or have been in the same sinking boat as you. And scrambling back to high ground and even homeownership is possible. But there are pitfalls along the way to be wary of.
Watch Out For Scammers and Snakes
First of all, watch out for scammers who promise a quick fix. There are no quick fixes or easy paths out of this mess. These people may try to sell you on a lease-back plan that will keep you in your home. No worries, they’ll buy your house and let you live in it, only as a renter rather than owner. Generally, the terms are ridiculous and the plan is unworkable.
Other scammers call themselves “consultants” and charge big fees for doing little work, if much at all. In fact, they may charge you for steps you could have taken yourself. Not only does this kind of scam cause you to lose money, but you lose something even more valuable: time. You may believe the foreclosure “consultant” is handling the situation and you’ll do nothing during the crucial time period when action must be taken. By the time you realize you’ve been scammed, it is too late to get current on the loan, negotiate with the lender, sell the house, or find effective assistance.
Even worse than the lease-back scenario mentioned earlier, the scammer may actually steal your home out from under you by getting you to unwittingly sign ownership over to him. Sometimes, the homeowner believes they’re merely signing new loan documents to bring the mortgage current, but instead is signing title over to the scammer. Worst of all, the scammer may simply forge the homeowners’ signature on documents.
So how to tell these snakes in the grass from the people who can legitimately help you?
For one thing, legitimate foreclosure consultants don’t seek you out; you must go to them. If someone shows up at your door, smells your desperation and starts to smooth talk you, send them packing.
Many times scammers claim to be affiliated with the government or they’ll cozy up to something you have in common: Christian-to-Christian, Spanish-speaker to Spanish-speaker, or senior-to-senior.
They’ll claim their solution is “quick and easy” and urge you to stop all contact with the mortgage lender. These should all make warning bells and sirens go off in your head, but in your desperation, their plans may sound tempting.
Counteract their tactics by staying in touch with your lender, learning your options and keeping abreast of the entire foreclosure process. Get help from a HUD-approved housing counseling agency. If you don’t speak English, use your own translator. Do not rely on the translator provided by the company or organization helping you. Get everything in writing. Do not settle for verbal agreements or deals done with a handshake. Have a lawyer, financial professional, or trusted friend or relative review any documents. This is especially true if you are transferring title to your home to someone. Never sign a blank page or a document with blank lines.
More Time = Better Credit
So other than avoiding scammers and relying on those who can provide legitimate help, what does it take to move past this and back out into a sense of optimism?
The old adage is, “time heals all wounds” applies here, particularly when it comes to your credit. Raising your credit score from the dead is crucial toward recovery.
The bad news is, a foreclosure will push a credit score off a cliff, usually by 200 to 300 points. The minimum FICO score a lender will look at is 340, which is considered pretty abysmal. Add to that the fact that lenders have tightened credit since the economic plunge. It’s no longer easy to refinance a mortgage, even with a good credit history.
Ready for some good news? Of course you are. Although a foreclosure can remain on your credit score for seven years, the impact of foreclosure on your score gradually diminishes over time, especially if you have other active accounts and pay at least the minimum on time. Even the Federal Housing Administration will allow a new mortgage to be approved if a past foreclosure was more than five years old. If you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years. The important thing to remember is that a foreclosure is a single negative item. If you keep it isolated, it will be much less damaging to your credit score than if you had a foreclosure in addition to defaulting on other credit obligations.
Home Again, Home Again
Foreclosure doesn’t have to mean the end of homeownership forever. Sometimes it means hard lessons learned, a few years of lean living, but a turnaround in the end. And yes, even homeownership is possible again. When you are ready to apply for your new mortgage, do not try to hide the fact that you went through foreclosure. Just the opposite: reveal the level-headed steps you took to remedy the problems that led to your foreclosure.
There’s light at the end of this tunnel called “foresclosure.” (And, no, it’s not an oncoming train.) For guidance, turn to legal and financial professionals, ask for recommendations, and calmly start again.