Fighting a Foreclosure — Legal Options and Issues
Fighting a foreclosure on a home may not always be the right approach, even if the homeowner has a valid defense. You should not let your emotional attachment to your home blind you to the financial realities of your situation. Important concerns to consider include the value of any equity in your home, your realistic prospects of keeping up with your mortgage payments, and your options to reduce your debt.
For example, you may not want to keep your home if you have little or no equity in your property. Equity is the value of your home that goes beyond the amount that you owe on the loan. In some cases, a homeowner may even have negative equity, which means that the home is worth less than the amount that they owe. You can review similar houses in your area on a real estate website or consult a real estate agent to estimate the likely value of your home.
Keeping Up With Mortgage Payments
Even if your home has some equity, you may not be able to keep up with your mortgage payments. If you find that half or more of your total income needs to be allocated to paying off your mortgage, you may face severe pressure in paying for the necessities of life, such as food and utilities. Regardless of how much you want to keep your home, this is not a viable situation, especially if you do not foresee your situation changing in the near future.
Ideally, you will want to allocate some amount less than 30 percent of your total income (before taxes) to making payments on your mortgage. There are some situations in which you may be able to deviate from that guideline, such as when a homeowner does not own a car, has no dependent family members, and does not have any serious health conditions. On the other hand, there are situations in which putting 25 to 30 percent of your total income toward your mortgage may be too much. You may need the money to support your family or pay for medical expenses associated with a serious illness or injury, for example.
Finding Ways to Reduce Debt
Some homeowners may reach the conclusion that they cannot keep up with their current monthly payments on their mortgage, but they still want to find a way to keep their home. They may be able to consider other strategies to work down their debt to account for the extra burden of the mortgage. You can break down each of the items on your budget or get assistance from a housing counselor to see whether there are areas in which you can trim costs and avoid a foreclosure.
Another strategy to consider is negotiating a loan modification with your lender if you meet the requirements that it provides. If you have a Fannie Mae or Freddie Mac mortgage, or if you have an FHA loan, you may have a broader set of options.
As a last resort, a homeowner may file for bankruptcy under Chapter 13. This would allow them to keep their home (and their other property) while making monthly payments on their debts under a repayment plan that lasts for three to five years. You can also file for Chapter 7 bankruptcy if you are under serious financial pressure, but this may result in the loss of your home if you have equity in it and cannot cover all of it under the applicable homestead exemption.
Fighting a foreclosure on a home may not always be the right approach, even if the homeowner has a valid defense. You should not let your emotional attachment to your home blind you to the financial realities of your situation. Important concerns to consider include the value of any equity in your home, your realistic prospects of keeping up with your mortgage payments, and your options to reduce your debt.
For example, you may not want to keep your home if you have little or no equity in your property. Equity is the value of your home that goes beyond the amount that you owe on the loan. In some cases, a homeowner may even have negative equity, which means that the home is worth less than the amount that they owe. You can review similar houses in your area on a real estate website or consult a real estate agent to estimate the likely value of your home.
