Top 11 Biggest Foreclosure Mistakes

Foreclosure Sign, Mortgage Crisis

Image via Wikipedia

11.  Relying On Only The Making Home Affordable Program. The federal government’s Making Home Affordable Program and FHA Short Refi Program are just two options for relief if your house is underwater. I recommend homeowners contact their lender directly and convince their lender that the homeowner’s hardship situation merits relief. There is nothing stopping the lender from working with you outside of a government-sponsored program.

10.  Poorly Written Hardship Letter. You need to use a top of the line hardship letter which will convince your lender that you deserve help and that you’re not trying to take advantage of them.

9.  Trying to Get a Loan Modification Without Help. It’s extremely, extremely difficult to get a bank to grant a loan modification. Most lenders are very skeptical of such requests. You have to extremely detail-oriented, organized and follow up daily with your bank to make sure they’re processing your request.  On the other hand, under California law most lawyers won’t take on a loan modification because they cannot take an up front fee and there is no guarantee of being paid. My recommendation is to buy a book that will walk you through the process, or have a friend or relative help you.

8.  Relying on a Real Estate Agent to Do a Short Sale. Most real estate agents are good at showing open homes and negotiating sales. Most are not good at following up daily over many months with lenders to make sure a short sale is processed. It’s best to hire a short sale facilitator to process the short sale.

7.  Not Getting the Tenant Out. Sometimes owners have a property with a tenant in it and they like the tenant. It’s hard finding good tenants, and maybe the tenant has a lease. So they don’t want to get the tenant out. But they need to find a way to get the tenant to move out – I recommend buying the tenant out of their remaining lease.

6.  Trying to Short Sell a Second or Vacation property.  Many lenders will not grant any relief to a non-owner occupied house.  You may want to see if you can move in to the property, or short sell your primary residence first, assuming your primary residence is under water as well. (Find out How to Sell a Home Using a Short Sale.)

5.  “Walking Away” without Fully Understanding the Ramifications. Before you just “walk away” from the mortgage, you need to know if your state is a recourse or non-recourse state, and whether you refinanced. In California, if you have not refinanced (i.e. you have a purchase money mortgage), then your loan is most likely non-recourse, meaning the lender cannot file a lawsuit to collect on the deficiency. If you have refinanced, the lender may be able to go after you.

4.  Trying to Short sell a house with a tenant in it. You are better off trying to get your tenant to move out before attempting to sell it, and you will get a better price as well.

3.  Not listing the house for sale early enough. Most lenders require 90 days of listing history before accepting a short sale, deed in lieu, loan modification, etc.

2.  Not Understanding Bankruptcy Options. If you have foreclosure problems, you have possible bankruptcy problems too. Talk to a bankruptcy attorney to get advice on whether and when you may need to declare bankruptcy. If you have other consumer or business debt, you may need to declare bankruptcy (See my previous post on the 5 Steps to Take When Considering Bankruptcy.)

1.  Failing to Investigate Alternative to Foreclosure Options. A foreclosure is not your only option. Have you thought about doing a deed in lieu of foreclosure or a strategic default or finding an investor? It’s time to get creative.

We discuss many of these issues in detail in our new ebook: The Foreclosure Legal Guide: How to Get Rid of Unwanted Real Estate Through Foreclosure, Short Sale, Loan Modification, Deed In Lieu, or Other Legal Strategies.