Financial Advice to Avoid Foreclosure

The current foreclosure crisis in America threatens to make many more homeowners helpless victims of the banking industry and of their own mistakes or greed. As a result, large sections of the country will end up in the hands of multinational banks unwilling to sell these homes to potential buyers. Most homeowners will not end up completely homeless, but there will be a lot more renters located in far less geographic space, while the multinational banks end up owning vast portions of the country. The fact that the mortgage companies will be unable to sell these properties and uninterested in renting them out will not matter -- they can add trillions of dollars of real estate holdings to their bottom lines, deduct depreciation every year, or sell the properties for very little in order to make more bad loans. But there are a lot of things homeowners can do to protect themselves from this fate.

There are a number of questions that every homeowner who bought or refinanced a house in the past few years should ask themselves. Did you know you had an ARM that would increase in price, or are you talking about refinancing your loan with a fixed rate that turned out to be too high to begin with? We run into numerous foreclosure victims who are losing their homes because of the simple fact that they did not even know they had an adjustable rate mortgage, and could not afford the rate increase.

What about your emergency fund? Most financial advisers, news commentators, and anyone who has been in a financial bind before knows that it is recommended that you have 3-6 months of income stashed away in an emergency fund (preferably in an interest-bearing savings account, money market account, or other liquid account), just in case you need help paying bills. Did you run out of funds and is this why you are now forced to look for ways to stop foreclosure before you run out of time?

And how about lowering your monthly expenses to the bare minimum? Get rid of the cable TV, air conditioning, keep the heat down to a very low temperature, cancel the cell phone, do not take extra trips with the car, grow your own food (even a little bit helps), etc. All of these are modern luxuries, some which did not exist even as little as 50 or 100 years ago, and human were able to survive for several tens of thousands of years without them. If there is a serious choice between watching 24 or saving your home, then you may want to reconsider owning a home at all.

Could you sell any unnecessary assets, like CDs, DVDs, old books, useless items, or otherwise? A garage sale can bring in a month's worth of mortgage payments or more, depending on how much your payment is, or you can unload some items to keep on top of other bills and keep your credit score just that much higher for an extra month or two. That might be all it takes to find a lender that can refinance the loan out of foreclosure. Many individuals tend to buy useless things that they do not need, then sell or give them away for pennies on the dollar. You can take advantage of other peoples' bargain-shopping instincts and sell items that are not as important as keeping your home out of foreclosure.

Of course, if you would have to go without every convenience and sell everything just to make the mortgage payment, then it makes sense to ask if it is worth saving this particular house. If all of your income would have to go towards just paying the loan, then you may be in a loan that is simply not right for you, and it may make sense to sell and move to a more affordable house, even if it is smaller and in a less-desirable neighborhood. Scaling back, in combination with selling unimportant items and lowering your expenses, can have positive effects on your financial stability far into the future, and will help you stop foreclosure now.

It seems that a lot of homeowners were relying solely on "hope" for things to get better or stay normal. But we all know that life happens sometimes, and a financial crisis will hit at the most unexpected moment. There is no way to plan for some hardships, but there are numerous ways to make them less difficult to get through. Hope alone is a pretty flimsy support, though, and it rarely comes through when it is most needed. But homeowners can take back control of their finances and reevaluate their financial habits as a whole, and protect themselves much better from the greed and bad habits that can be developed in a consumption-oriented society.