How to Save the House: Steps to Avoid Foreclosure
Financial problems can create a range of situations from a minor distraction to a major crisis, such as losing your home. Unfortunately, debt has a way of piling up, making it difficult to find your way back to financial stability. But there is good news: you can take steps to resolve the situation and avoid foreclosure.
To illustrate the process, I’m going to share the story of how one of our clients, who we’ll call Sally, came to a resolution that put her life back on track.
Sally’s Challenge
Like many people, the arrival of the Covid-19 pandemic created several financial challenges for Sally. With two children at home during the pandemic, Sally’s household expenses increased, while her income declined. This combination increased the amount of debt she owed.
As a way of managing the debt, Sally borrowed $44,000 using a home equity line of credit.
While that helped alleviate the immediate problems, as time progressed, Sally was not able to make the payments towards the loan.
After she failed to make payments for several months, the bank turned the loan over to an attorney for litigation. The law firm planned to resolve the debt by obtaining a court judgment against Sally. Loss of her home and eviction was a definite possibility.
The Solution to Avoid Foreclosure
Fortunately, Sally reached out to Everyday Money Management for help before her case went to court for trial. Our first step in resolving her debt and avoiding foreclosure was to document all of her finances and help her understand her options.
Sally’s only assets were the house and a 401k from her job, but that was enough to create a solution by borrowing $28,500 from her 401K as a hardship loan.
It is important to note that this was done as a hardship loan and not a hardship withdrawal which would have created a taxable event.
We created a plan to allow Sally to repay her 401K back on a monthly basis with funds from a side job.
The next step to avoid foreclosure was negotiation.
We presented the attorney with the offer of $28,500, along with full documentation of all other debts and scarcity of any other assets. The offer was accepted as settlement in full and the remaining debt was forgiven.
How to Avoid Your Own Foreclosure
It’s important to understand that every situation has its own nuances, but financial documentation and negotiation are key steps to finding a resolution. If you have an attorney or tax professional you can consult, they can offer guidance and assist you in finding the best manner to navigate the situation.
If you don’t have those relationships, then Everyday Money Management’s financial problem-solving services may be able to help you like they did for Sally.
Please contact us today if we can help.