Editors' Pick: Originally published Dec. 29.
Think the mortgage foreclosure crisis is long over? Think again. A legacy of the Great Recession of 2008-2009, the problem of financially pressed Americans losing their homes wasn't solved -- only deferred.
Many public and private temporary relief measures will expire in 2016, likely triggering a new wave of home repossessions. This scenario is only one of many dangers lurking for investors in the new year. Below, we show you six ways to protect your home from foreclosure.
To be sure, eight years after the mortgage crisis initially emerged, foreclosures are down. At the peak in 2010, nearly 3 million homes experienced foreclosure filings in 2010; in 2013, the number was down to 1.1 million.
But that's about to change. Notably, home equity lines of credit that homeowners took out during the prerecession "go-go" years (when homeowners routinely used their homes as ATM machines) will start to feature increased payments in 2016, as borrowers are forced to pay back principal instead of merely the interest.
If your bank is trying to squeeze you from your home, consider these options:
1) Carefully Scrutinize All Information
Take nothing for granted; trust no one; assume nothing. That means you should closely read all documents you receive from your lender or trustee. Put a magnifying glass to the fine print. If you don't understand something, don't be embarrassed -- some contracts are purposefully confusing to allow/prevent certain loopholes. Ask your lender to explain specifically what you're agreeing to. And remember, no one can ever force you to sign something. If you feel uncomfortable, ask to speak with your lender's manager.
2) See if a Payment Will Extricate You
Determine how much money it would cost you to stop the foreclosure. If there's an amount of money that would stave off foreclosure, then pay it. Get a precise total, as to the entire amount of back payments and charges. Don't lose your home over a single back payment that you can scrounge together.
3) Seek a Compromise
In our free-market system, you only get what you negotiate. Put another way, you never know what you can get, until you ask. Test the waters. See if you can hammer out a compromise to make adjusted payments to the bank or trustee.
Lenders make money off your home mortgage from your principal and interest payments. Foreclosure is neither an attractive nor lucrative option for them; in fact, lenders typically lose $50,000 or more on just one foreclosure. You might be surprised by your lender's flexibility and willingness to work out a deal. A foreclosed home is an albatross on the lender's balance sheet; knowing this fact gives you negotiating leverage. In fact, certain highly leveraged banks are among a group of weak and dicey stocks that are poised to collapse in 2016.
You could suggest suspension of your payments for a short time, to give you breathing room to clean up your finances. Another suggestion that stands a reasonable chance of acceptance is for you to make temporarily reduced payments for a few months until you're back on your feet.
4) Borrow Money From a Family Member or Friend
Chances are, if you're on the verge of losing your home, you're tapped out and unable to borrow money from any bank. However, for most of us, losing a home is apocalyptic and warrants asking a close friend or relative for a loan. It's an unsavory option, but it's better than losing your house. Work out a reasonable time horizon to pay back the lender; be honest about your ability to pay and how long it would take. Put it all in writing and make sure both parties sign the document.
5) Refinance the Loan
Find a mortgage broker that can refinance your existing loan. Despite the Federal Reserve's recent monetary tightening, interest rates are at rock-bottom levels. A refinanced loan at a lower rate would reduce your monthly payments and boost your cash flow, giving you a chance to fix your finances.
6) Sell the House
Consider finding a trustworthy realtor to sell the house. You'll need to be realistic about the asking price, because you need to unload your home right away, before the bank has a chance to take it away from you.
For further insights, consult the advisers at such tax or brokerage organizations as H&R Block, Liberty Tax, Charles Schwab, TD Ameritrade or T. Rowe Price.
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John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.