Obtain a Private Loan
Generally speaking, most people need an amount equal to 3-4 payments plus attorney’s fees to stop their foreclosure. If you are unable to obtain this amount through traditional lenders, try looking elsewhere for the loan. This is called obtaining a “private loan” or “private money”. The approval process is much easier, but the terms may not be.
Friends & Family
Many people have friends or relatives who are willing and able to act as the lender in this case. If your friend or relative feels more comfortable, you can give them a second mortgage or deed of trust to secure the debt. Every state and situation is different, but generally the second mortgage or deed of trust gives the lender (your friend or relative in this case) a lien against your property. The property cannot be subsequently sold unless the debt is paid off.
Work out whatever terms you can that are mutually agreeable, but I would suggest paying off this debt as soon as possible. For example, do you have a tax refund coming soon? Or can you take a second job to earn some extra money to pay it off? Your friend or relative is going out on a limb for you - pay them off as quickly as possible. Many a relationship has been spoiled over money, so take each step with thought and care, as you are most assuredly walking on thin ice here.
Once you have come to an agreement with your lender, you need to find someone to help you with the paperwork. You can get an attorney or title company to draw up the necessary legal documents for everyone to sign. Another excellent choice is to use a service such as Circle Lending, which specializes in setting up financial arrangements between family and friends. They will be much cheaper than have an attorney do the work for you.
Local Private Investors
If friends or family are not an option for you, you may be able to find a private individual to loan you money. Be aware that you will probably need to have sufficient equity and a good loan-to-value ratio for a private investor to loan you the money. Look in the “Money to Loan” section of newspapers in your area, or place an ad saying: “Wanted: private investor to fund short-term second mortgage. Excellent terms. (your phone number).” Figure out how much you can realistically afford for a monthly payment and plan on giving at least 12-15% interest, then use an online loan calculator (go to MyFico, click on Calculators, then How much will my (fixed) mortgage payments be?) to determine how many years of a loan you need. You will likely get many calls – just solicit offers and take the best one you get. They will ask you for a lien against the house to secure their debt. I strongly recommend you pay a lawyer for a couple hours of their time to represent you and review the paperwork on the transaction. If you sign papers that you don’t understand, you might find yourself back in foreclosure – this time with your new lender!
Other Sources
I have recently become aware of a new source for private money — the oddly named website Foreclosure Fish. They match borrowers and private lenders and also have many additional resources on their site. The site is new but the company behind it, Adama Properties LLC, is not.
You can also check the Resource Page for other sources of private money.
