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4 Steps to Avoid Repossession

Are you concerned that your car or other personal property is in danger of being repossessed? For many people, those fears are well-founded. A report from the Better Business Bureau reveals that about 1.7 million vehicles were expected to be repossessed in a year's time. On top of that, a recent New York Daily News article states that over one million homes may face foreclosure in 2010.

If you're having difficulty making payments on your car, home, or other property, it's understandable to be concerned that the lender could come and take possession. But there are ways to prevent this from happening. If you are proactive in communicating with your lender, and you can work out a payment arrangement, you may be successful at keeping the repo man away.

Here are four steps you can take now to help avoid having your property repossessed.

1. Proactively call the lender
As soon as you realize that you will have problems paying your monthly payment, contact your lender, even if you're not behind on payments yet. That way, when your payment is slow to be received, the lender will understand that it's due to a legitimate hardship.

When creditors know that you've been diligent in contacting them, they may be more willing to work out a payment plan instead of repossessing your property.

2. Refinance your loan
If your payments are high, but you've been able to make them in a timely manner, try to refinance your loan. Interest rates are the lowest they've been in a very long time, so refinancing may allow you to have a lower payment.

Refinancing may also give you a chance to extend the length of the loan, which could also lower your monthly payments. You may end up paying more interest overall, but the lower payment requirement may be more manageable, and could help you avoid a repossession.

If the concern is with your mortgage, contact your present lending institution to see if they'd be willing to change the terms of your loan or assist you with refinancing your mortgage. If these are not options with your current lender, contact a credit union or local bank to inquire if they can help you.

If your home is in danger of being foreclosed, check to see if you're eligible for the Home Affordable Modification Program (HAMP). This plan gives borrowers whose mortgage is owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance to a lower interest rate.

3. Ask to skip a payment
In a recent Bankrate article, lenders stated that the most common method of help they offer their borrowers who are having trouble making their monthly payment is to allow them to skip a payment. Then, they simply add the skipped payment to the end of the loan. This can be a win-win situation, because the lenders still receive the total amount owed, while borrowers receive temporary relief as they work through their financial troubles.

Or if you've been able to make partial payments on your loan each month, but you still seem to be a payment or two behind, ask your lender if you can skip your obligation for one month. Be sure to ask your creditor for this assistance well before the payment is due. If the lender agrees to the option of missing a payment, be sure to get this change in writing. Note that the skipped payment may be reported to credit bureaus.

4. Sell your property
When monthly payments are truly a burden, it may be a smart choice to simply sell the property and downsize to an alternative you can comfortably afford.

Whether it's a car, boat or home, if you put the property up for sale yourself, you're likely to get more money for it than if it were repossessed and sold at an auction. And even if it were repossessed and sold, the lender might still come after you and demand payment of the "deficiency balance," which is the difference between the sales price and the remaining debt.

If you're upside down in the property, meaning you owe more for it than it's worth, consider using your savings or obtaining a smaller loan to help pay the difference between the sales price and your original loan balance. This may not be a very desirable option, but it would be better than having the lender repossess the property and then charge you for the deficiency balance after the fact.

If you're in danger of having your property repo'd, take action now. By communicating with your lender early, you may be able to come up with a plan that allows you to keep your property and get back on track with your payments.

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