Most people think a good way to avoid foreclosure is to start over…..refinance the mortgage and just start over.
The problem is most people facing foreclosure cannot refinance.
Stopping foreclosure is very difficult. Unfortunately, you will run into all kinds of mortgage brokers and lenders out there who will tell you what you want to hear and waste your time. Time is something you can’t afford to waste when you are trying to avoid foreclosure. You only have about 4-8 months after missing your first mortgage payment until you lose your house. The foreclosure process varies by state and lender.
Unscrupulous mortgage brokers and lenders have always preyed on people in trouble. There is no way they can get you refinanced but they tell you they can help stop foreclosure.
Why would they do that? They don’t get paid if you don’t close, so why would they take your application and keep you from looking at other options?
Unscrupulous mortgage brokers train their staff to just bring in the business…..get as many applications as they can. Some companies even have sales meetings to enforce getting applications even if they don’t close. This would surprise you but some mortgage companies live by the rule “throw everything against the wall and see what sticks.”
You are in a very scary situation and you are treated like everyone else. You were never going to “stick” in the first place but now a month or two has gone by and you are even further behind on your mortgage payments.
Some mortgage brokers or lenders make money off of you by taking a fee up front. They know for a fact that no one can refinance your mortgage, but they tell you for a fee up front they will start working on your loan.
Quite a nice business model don’t you think? They tell you everything you want to hear when you are trying to avoid foreclosure. They collect a fee because you believe them and they move on to the next unsuspecting person. Not another minute will be spent on you after they get your money.
Who can refinance to avoid foreclosure?
You need equity in your home. Depending on how far you are in the process, you may need at least 25% equity in your property. The farther you are in the foreclosure process, the more equity you will need. If you are more than 2 payments behind and you don’t have at least 25% equity, it is almost impossible to refinance. Make sure when you are calculating the equity, you factor in all the late fees and legal fees.
Speaking of how far along you are in the foreclosure process, that makes a huge difference when refinancing. Once you are more than 90 days late on your mortgage, everything changes. The rate will dramatically change if you can even refinance at all after that point. That is why it is so important to pick the right mortgage broker or lender, because if they are not experienced in these types of loans, they can take too long and you will pass the point of no return.
Some private party lenders may be able to refinance you to avoid foreclosure. These are typically known as hard money lenders. They decide if they will lend you the money personally. There are no underwriting guidelines. It is a case by case basis. These can be very expensive. The rate and fees will probably be so high you won’t be able to afford it.
That brings up an important point. Even if you can refinance, what is your new payment going to be? If you are having trouble making the payment now, the payment is guaranteed to be more because you are trying to avoid foreclosure by refinancing. Any loan you get will probably be too expensive.
If you do not have equity in your property do not even consider refinancing your home to avoid foreclosure. You will end up wasting valuable time and money to find out no one can help you. Instead, seek the advice of a reputable attorney and see if you can work something out with your lender.
Good Luck!
Lester Bleich, New York State Licensed Mortgage Loan Originator 