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How to Avoid Foreclosure in Arizona

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Foreclosure is a homeowner’s worst nightmare. The thought of being suddenly uprooted from your home within weeks or even days would terrify any sensible person. Arizona has a foreclosure rate of 1 in every 3,302 houses, with Cochise County having the most prevalent issue with 1 in every 1555. Luckily however, the number of foreclosures in auction is down 12.6 percent from last year, and bank owned foreclosures are down a whopping 74.8 percent, which indicates that things are looking up for the state as a whole (RealtyTrac). Despite this downward trend happening in the state, there are still plenty of families and individuals who are facing foreclosures. If you are one of those, or just want to be prepared, keep reading for more information and resources that will help you get back on your feet.

What is Foreclosure?

how to avoid going into foreclosure

A foreclosure happens when a homeowner has failed to meet deadlines for re-payments of their loan to a lender, which often results in the lender attempting to recover the balance by auctioning (or other method of sale) the home for collateral. Homeowners may find themselves forced to foreclose due to any number of reasons, many times resulting from unforeseen circumstances or emergencies such as:

  • Job loss (laid-off, fired, quit)
  • Medical conditions that render them unable to work
  • An excess of debt
  • Divorce
  • Job transfer outside of the state
  • Expensive maintenance issues/repairs necessary

Unfortunately, if you used a lender to secure a mortgage so that you could purchase a house, that house legally belongs to the bank, not you. The only thing you truly own is the equity (which is the money you have repaid to the bank for the mortgage). This gives them the legal ability to repossess your home, forcing you to move out.

If the property is worth less than the total amount you still owe on your loan, a deficiency judgment is a possibility as well. A deficiency judgment involved the court which states that because the sale of the property was insufficient to fully repay the loan to the bank (thereby failing to cover the outstanding debt), the former homeowner is responsible for making up that difference out of their own pocket in the form of a lien.

One of the biggest downsides of having your house foreclosed on is that these show as strikes on your credit report, which will make it difficult to qualify for loans and other things in the future. This is why it is very important to take steps to avoid this happening to you.

Communicate With Your Lender

It’s always a good idea to stay ahead of the game when it comes to anything related to finances, but especially when dealing with large assets such as your home. Not to mention, your home is where you live, it provides you safety and comfort on a daily basis, and you would likely be in big trouble if you lost it. So take precautions!

  1. Find your lender. Track down your lender’s contact information. You will most likely be able to find it on your monthly mortgage billing statement or by simply Googling the name of the lender.
  2. Be prepared. Make sure when you call, you have the following information written down and available in case it is asked for:
    • Your loan account number
    • A short summary of your situation
    • Recent income documents (these can include: pay stubs; Benefit Statements (from Social Security, Unemployment, Retirement, Public Assistance; tax returns, etc)
    • List of household expenses
  3. What to expect. You will likely be in consistent contact with your lender from that point forward, until you are able to get ahead of your payments again. Usually, the lender will mail you a “loan workout” package containing information, forms, and instructions. A loan workout is a comprehensive plan between you and your lender to restructure your debt in an effort to avoid foreclosure. This will likely require some negotiating with the lender to re-draft an agreement with new terms. The lender will look into why the homeowner is unable to pay the loan and determine whether or not the modified terms will allow the loan to be repaid. According to FindLaw, the lender will look at factors including:
    • The nature of the hardship that led to the homeowner’s inability to pay
    • The total amount that is still owed on the loan
    • How much equity has been earned on the property
    • Whether the homeowner has future financial prospects
    • Whether foreclosure or a loan workout would be more optimal for the lender

    • In addition, the article points out some ways in which the loan can be modified:
    • Missed payments can be added to the existing loan balance
    • The lender may agree to change the interest rate, even making an adjustable rate into a fixed rate
    • The total number of years allotted to repay the loan may be extended

    • Depending on the circumstances of your personal situation, your lender may offer one of the following:
    • Reinstatement. When the lender accepts the total amount owed to them in a lump sum by a certain date. (This option is often combined with a Forbearance.)
    • Forbearance. This is a reduction or suspension of payments for a short period of time. Following this, another option must be agreed upon in order to bring your loan current. This is often combined with a Reinstatement when there is an acknowledgment that the person responsible for repaying the loan will be able to secure enough money to bring the account current in the future.
    • Repayment Plan. This would typically be an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments added to each month until you are caught up.

    • Make sure when you receive the loan workout package that you complete the forms and return them your lender quickly. The sooner you take action, the better.
  4. Do not ignore mail or phone calls from your lender. If you do not stay on top of your payments, your lender will attempt to contact you by mail or phone shortly after you cease to pay. It is crucial that you are responsive to the loan office, as they are trying to reach out in order to help you, not to demand the money. But if the lender does not hear from you, they will be required to begin the foreclosure process by taking legal action, which will lead to an increased cost to you. It may also make it more difficult to re-negotiate the loan contract as you have already displayed signs of non-cooperation.

Credit Counseling

Speaking directly with your lender about missed payments can be intimidating. If for whatever reason, you feel uncomfortable speaking with your lender, there are other options. One of these would be to get credit counseling from an Arizona HUD-approved housing counseling agency. When you contact the agency, they will arrange an appointment with a counselor who will help you assess your financial system and provide you with options for moving forward with negotiating with your lender. These counselors are highly trained and will know which route will be best for you and your family, given your personal circumstances. The counselor will also call the lender with you or on your behalf to discuss a work-out plan. When you call, be prepared with current information regarding your income and expenses. The agency may also charge a fee, so confirm this before signing any documents.

According to the Arizona HUD website, you can find out more about HUD-approved housing counseling agencies and their services by calling 1 (800) 569-4287 on weekdays between 9:00 a.m. and 5:00 p.m. EST. You may also get an automated referral to the three housing counseling agencies located closest to you by calling 1 (800) 569-4287.

You can also call the AZ Foreclosure Help Line if you live in Arizona at: 1-877-448-1211

Long-term inability to make payments

The solutions listed above are mainly applicable in situations of emergency or unexpected events in which a person may struggle to make payments in the short term. However, if you are facing long-term difficulties that will permanently affect your ability to bring your account current, things will look a bit different. If you can continue making payments on your loan but do not have enough to catch up on payment, your lender may be willing to work with you to change some terms of your original loan to make payments more affordable for you. They may do this by:

  • Adding the missed payments to the existing loan balance
  • Changing the interest rate, including changing an adjustable rate to a fixed rate
  • Extending the time frame of when you have to repay
  • Claim advance: In the event that your mortgage is insured, it’s possible that you can qualify for an interest-free loan to help bring your account current.

When you’re facing foreclosure, it helps to keep in mind that you and your lender are working as a team — they aren’t working against you. You don’t want your home to be foreclosed on, and neither does your lender, therefore they will be more than open to discussions on how you can best get your payments up to date.

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