Homeowners should avoid foreclosure in NJ since not only will it damage your credit but you could still owe the mortgage company a deficiency for the unpaid mortgage balance and be ineligible for a Fannie Mae mortgage for the next 7 years. The biggest mistake people make is to not take any action until it’s too late. They often don’t know that there are alternatives available and they don’t want to deal with the mortgage company. But believe it or not, mortgage companies don’t like foreclosure either since they’re expensive and time consuming for them. For that reason, they may be willing to work something out and help you avoid foreclosure in NJ. Here are some things to consider:
If you don’t want to keep the home…
You may want to consult a local appraiser or real estate agent or check a site like zillow.com for an up-to-date estimate of how much your home might be sold for. After all, many real estate markets have started recovering so you may find yourself fortunate enough to no longer be underwater (don’t forget to subtract the costs of property improvements, closing costs, and real estate agent commissions). In that case, you can simply sell the home, pocket any gains you make and avoid foreclosure in NJ.
Otherwise, there are a couple of possible solutions that you might be able to work out with your mortgage company to avoid foreclosure in NJ. One is a short sale in which you sell the home for less than the mortgage balance and the lender agrees to accept the sale proceeds as full payment for the mortgage. If the lender won’t agree to it or if you can’t find a buyer for your short sale, you may be able to negotiate a “deed-in-lieu of foreclosure,” in which you simply give the property to the lender in exchange for them cancelling the mortgage loan.
Both options hurt your credit less than a foreclosure and can wipe away your mortgage balance. However, there are a few things to be aware of if you choose to avoid foreclosure in NJ in this fashion. First, make sure that the lender is actually forgiving the full amount of the mortgage deficiency. If the contract seems at all unclear, consider hiring a real estate attorney to review it. Legal fees are a bargain compared to discovering that you still owe the mortgage company money because you didn’t understand the contract.
Tax consequences are the second potential pitfall to be aware of. That’s because debt cancellation is normally taxed as income. But the Mortgage Forgiveness Debt Relief Act generally exempts you from being taxed on up to $2 million of mortgage forgiveness on your primary residence through the end of 2012 as long as it’s due to a decline in the value of your or your financial situation. That means you’ll want to avoid turning it into a vacation or rental property first or waiting until after the act is scheduled to expire at the end of the year.
On the other hand, if you want to keep the home…
You’ll want to start by figuring out what you can afford to pay towards your mortgage before a pre-foreclosure hits. It’s best to go through at least your last 3 months of bank and credit card statements to get an average of your actual expenses rather than just estimating what you think you spend. That’s because seeing where their money is really going can be quite an eye opener for most people. Just don’t forget to include non-monthly expenses too, like vacations and holidays, by dividing the amount you spend on them per year by 12 to convert them into a monthly number (you get bonus points for having that amount automatically transferred to a separate savings account each month so the money will be there when you need it).
Once you know where your money is going, consider ways to cut back on those expenses and free up money you can use towards your mortgage and avoiding foreclosure in NJ. You might also be able to earn extra income with a part-time job or even by renting out a room to a tenant. If you’re still coming up short, be sure to prioritize your mortgage payments along with other necessities like food, health care, and transportation over credit cards and other unsecured debt. Not paying your credit card bill will cost you fees, interest, and a lower credit score. Not paying your mortgage will cost you all of the above plus possibly your home. If necessary, you may be able to get rid of the rest of your debt by filing for bankruptcy while avoiding foreclosure in NJ.
Once you know what you can afford to pay, you can try to negotiate an affordable payment plan with your lender. If it’s just a matter of getting caught up on past payments, one possible solution is a special forbearance, in which the lender would spread the back payments out over 2-4 months and maybe even allow a temporary suspension or reduction in your payments. Your lender may also help you get interest-free loans from HUD to get you current. In either case, you would then have to continue making payments going forward as before so if you can’t afford those payments due to a financial hardship that reduced your net income, see if you can get the mortgage modified with your lender at a lower interest rate or a longer payment period to reduce the monthly payments.
You may be tempted to dip into savings to avoid foreclosure now in NJ, sell assets or go deeper into debt to try to save your home. Your employer’s retirement plan may even allow a special hardship withdrawal to avoid foreclosure in NJ. This can make sense if you just need to get caught up on back payments or get through a temporary rough patch. It’s important to be realistic here though. Depleting your savings and going deeper into debt isn’t a great idea if you can’t make the payments in the future and end up losing your home anyway. If you ever get to the point that you are in forclosure, consider thinking about how to sell your house to an investor in NJ.
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