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How to Avoid Foreclosure in Colorado
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<< return to How Much Will a Short Sale Cost?
The following information may not be applicable to each and every homeowner in danger of losing their home. Every situation is different. They are presented here for informational purposes. The homeowner is advised to contact a lawyer if they have specific legal questions. Let us know if you want to avoid Foreclosure or if you have any questions regarding the foreclosure or short sale information presented in this web site.
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Depending on where you are in the foreclosure process, you may be receiving junk mail or solicitations from bankruptcy attorneys, mortgage brokers, real estate agents, or investors all telling you how they can make the foreclosure “go away”.
Although it's impossible to go through all of the ways that homeowners might be conned, a good rule of thumb is to NEVER sign your rights to your home away without the mortgage being settled (paid off) with the Lender. In real estate there is a vehicle called a quitclaim deed.
A quitclaim deed is a term used to describe a document allowing a person (the "grantor") to disclaim any interest they may have in a piece of real property and passes that claim to another person (the grantee).
So if someone offers to “take care of” the foreclosure, all you have to do is sign the property over to them and they'll take care of the loan. Be very careful and speak to a professional with foreclosure experience that you trust – before signing anything.
Also be wary of anyone claiming claiming that they can stop the foreclosure no matter what you owe. There are a lot of firms claiming that "We can stop foreclosure!". A major warning sign is any company that requires you to pay upfront for their services, tells you NOT to contact your lender, or requires you to turn over the property deed to them.
The worst thing you can do is to do nothing. If you decide to do nothing, the result is easy to predict. You'll loose the house and then have to work on fixing your credit. You won't qualify for a loan for several years (at least a loan with a good interest rate).
When you contact your bank (usually the Loss Mitigation Department, but the Lender may call it something else), remember a couple of things. Because of all of the foreclosures that are currently facing, the people you speak to at the bank are overworked, they are speaking to stressed-out homeowners all day long, and some may not have a lot of experience or are poorly trained. Be patient. Be polite. Be professional. Always keep in mind that if you can successfully plead your case, you'll be able to avoid foreclosure.
Before You Contact Your Lender
Sometimes you have resources that can help you make or catch up on mortgage payments to avoid foreclosure. Can you make a new household budget that reduces spending? Do you have any vehicles that can be sold like cars, boats, and motorcycles for cash. Is there a retirement fund can be used (certain penalties may apply)?
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First Step – Contact Your Lender
One of the best ways to avoid a foreclosure is stop a fore closure form being filed. When a lender realizes that a homeowner has missed several mortgage payments, they become concerned and want to protect their interest. The first thing the lender will do is file a “Notice of Default”. Contact your Lender as early as possible. You want to come upp with an agreement that will adjust your mortgage to help you get through this time period.
So if you've missed a mortgage payment or several mortgage payments, the first thing you should do is to contact your lender and explain to them your particular situation and what the hardship is.
Depending on your specific situation here are some options that you may be able to initially agree to with the lender:
1. If you come into some money a Total Reinstatement can be done. A total reinstatement involves bringing your loan current in one payment. You will need a certified check that will cover all of the past due payments, late charges, and any additional fees that may have been made against your account.
2. You may be able to agree to a Forbearance of the loan with the lender. A forbearance is the act of a creditor who refrains from enforcing a debt when it falls due. This may give you enough of a chance to make the payments current. A forbearance plan may allow reduction or suspension of payments over a period of time, followed by a period of time when the deferred payments are made up.
3. You may be able to negotiate a Loan Modification, A Loan Modification consists of one or a combination of the following: missed payments are added to the loan balance (increasing the term of the loan), increasing the total number of payments to pay off the loan. For the lender to do this you may need to have enough equity on the home. In essence the loan would be refinanced. There will also be fee for doing this.
4. You may be able to work out a Repayment Plan with the lender. Basically increasing your monthly payment until you are caught up and current with the mortgage payments. The lender may require an additional monthly contribution to your mortgage of 30% to 50% of your total arrears (the sum of late payments, bank fees, etc...).
5.If you now have the income, you may be able to Refinance. Refinancing will require additional money (e.g. home appraisal), and will more than likely increase your monthly loan payment.
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6. Sell your home.
In order to do this you must be able to do it quickly, since you'll have a deadline of getting this done before the foreclosure sale date. Selling your home can be done in three ways.
a. Sell it yourself. If you have some equity in the home you may be able to sell it yourself. Understand that in order to do a quick sale it will most likely require selling the house at below market value. You'll also need to know the best way to market your house in order to reach the greatest number of potential buyers.
b. Sell to an investor. In this case the house will also need to sell at below market value in order to interest an investor. When dealing with an investor make sure that the bank is aware and involved at every step of the negations. The bank is the owner of the property as a security against the money that was lent to you. The bank needs to give approval, otherwise you may be liable to the bank.
c. Sell through a qualified REALTOR® that is a Short Sale Expert. Depending on where you are in the Foreclosure Timeline, a real estate agent may be able to perform a Short Sale for you you. A Short Sale is a transaction with the bank where a Buyer is found that is interested in purchasing the property, but is offering less on the purchase price than what the homeowner owes. The entire transaction is performed legally, through a Title company, and all parties (the homeowner, the bank, and the Buyer) are involved. When the Short Sale is successful, the homeowner is able to get out form under the mortgage, avoid a foreclosure, and not have a foreclosure appear on their credit report.
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