Guidelines for Avoiding Foreclosures

A foreclosure is, to put it in simple terms, when a lender decides to take back a house or any property from the owner and sells it off when the owner can’t afford to keep paying for the mortgage. Foreclosures in the Philippine real estate industry happen in two methods:

Judicial foreclosure – During a judicial foreclosure, the lending company goes to the Regional Trial court of the city where the property can be found, and they ask the judge to send a notice to the owner, which will give him 1 to 3 months to pay off whatever remains of the mortgage. If the owner fails to comply, a public auction is held to sell the property.

Extrajudicial foreclosure – In an extrajudicial foreclosure, the court does not get involved. The lender instead asks a sheriff or a notary public to supervise the foreclosure sale. However, this type of action can only happen if the foreclosure notices had been duly printed and sent.

A foreclosure might take you out of your misery as far as your mortgage is concerned, but what it will leave you is a bad mark on your credit history, which can affect you negatively in the future. You can prevent this from happening if you follow these suggestions.

Be honest. As much as you would rather run from your lender, you should instead be frank about what is going on by telling them if you are having trouble paying your mortgage loan because you’re going through a rough patch in your finances. Doing this will show them that you intend to pay back what you owe them. Telling the truth can also help you in another way; if your lender knew what was up, they might be inclined to help you. Aside from the fact that a foreclosure will also cost them money, banks are not allowed to have a large percentage of bad loans, so they’d be doing themselves a favor, too.

Refinance your home. Granted that your payments have not been defaulted yet, you can get a home loan refinancing from another bank or lender. A home refinancing will give you more time to pay off your debt and at lower interest rates, which means that your amortizations will not be too difficult to manage.
Ask about a mortgage modification. A lender might prefer to give you a loan restructuring in place of a property foreclosure. If you choose to get a mortgage modification, some of the things that will make your payments easier are lower monthly amortizations and a longer loan term. A loan restructuring also offers benefits to the lender: since banks hate having bad debts, helping you out will ensure that yours is an earning and performing loan.

Do a short sale. When you do a short sale, it means that you are trying to sell your home as fast as you can so that it won’t be foreclosed. At this point, you’re just trying to get the amount of your mortgage’s balance, so you shouldn’t expect that you can sell your property for its full price. What you do have control of, however, is that selling process, since a short sale is just like any other real estate sale, only faster.
Foreclosures are one of those worse-comes-to-worst situations that no one wants to see happen to them. However, as we never know what will happen in the future, it’s better to be ready for anything.