foreclosure auctions

People who have financial difficulties may find themselves in asituation where they know they can't continue making theirmortgage payments.

If that happens to you, come up with a game plan before youbecome delinquent. Here are the major components of such a plan:

*Document your loss of income. This will position you todemonstrate to the lender that your inability to pay isinvoluntary, should this be necessary later on.

*Estimate your equity in the house. Your equity is what youcould sell it for after sales commissions and paying off yourmortgage. This will help you develop a strategy for dealing withthe lender.

*Determine realistically whether your financial reversal istemporary or permanent. A temporary reversal is one where, ifyou are provided payment relief for up to 6 months, you will beable to resume regular payments at the end of the period andrepay all the payments you missed within the following 12months. Prove your case for the reversal being temporary inwriting.

If you can't meet these conditions, your financial reversal isconsidered permanent by the lender. If the change in your statusis permanent, it means that you can resume regular payments onlyif the payment is permanently reduced. This requires modifyingthe loan contract: reducing the interest rate, extending theterm, or both. You need to understand the position of thelender.

While some actions you can take on your own, such as sellingyour house, other actions have to be negotiated with the lender.You do better in any negotiation if you know where the otherparty is coming from.

Let's say you have substantial equity in your house. If you do,the least costly action to the lender may be foreclosure.

While is costly, the lender is entitled to bereimbursed from the sales proceeds for all costsplus all unpaid interest and principal. They know they won'tlose any money on the deal.

While makes the lender whole, it's a financialdisaster for you. Your equity is gone, you incur the costs ofmoving, and your credit is ruined. You should always avoidforeclosure even if it means selling your house.

If your financial problems are temporary, and you can persuadethe lender they are, the lender may be willing to providepayment relief. The lender will probably prefer to keep yourloan rather than to foreclose on it. The burden of proof is onyou in this situation to demonstrate that the relief will reallywork.

If your financial problems are permanent, sell the house beforeyou begin accumulating delinquencies. In a high-equitysituation, there is little hope that the lender will agree tomodify the loan contract, so don't waste your time trying. Getout while you can. If you sell, at least you retain your equityand your credit rating.

If you have little or no equity, and your financial problems aretemporary, it will be easier to persuade the lender to offerpayment relief. With no equity, the alternative ismore costly to the lender.

If your financial problems are permanent, the lender probablywill be willing to accept either a "short sale" or a "deed inlieu of foreclosure." With a short sale, you sell the house andpay the lender the sales proceeds; with a deed in lieu offoreclosure the lender takes title to the house.

In both cases your debt obligation usually is fully discharged.(It does appear on your credit report, but it's not as bad amark as a foreclosure.) The lender who can get all or most ofhis money back in these ways probably will not be willing tomodify your original loan contract. Remember, they just wanttheir money.

If your equity in the house is negative (you owe more than thehouse is worth) but you want to remain there, the lender maygive you payment relief, or make a contract modification ifnecessary to make the payment manageable. With negative equity,these may be the least costly options for the lender.

Your Mortgage Advisor may be able to help you with yoursituation and it is always a good idea to sit down and talk withpeople that can help you through your difficult times.