Foreclosure is an action taken by lenders when the mortgagor fails to make their mortgage payments. It is a legal process in which the lender attempts to recover the balance owed by forcing the sale of the home. For many homeowners, this is a dreaded and heartbreaking time when they may be forced into foreclosure for a number of reasons. The good news is that even in the early stages of the foreclosure process, there are several steps that can be taken to stop it before it starts.
Here are some reasons why homeowners may fall behind on their payments and be forced into foreclosure.
o Sudden illness or medical emergency
o Unexpected unemployment
o Sudden relocation
o Too many bills
o Medical expenses/illness
Being knowledgeable about the process of foreclosure is just as important as knowing your options. There are actions taken at certain times during the process which make it important for you to have a general understanding of the procedure your lender will follow. The foreclosure process varies by state. When you fall behind with payments, you may fall into pre-foreclosure or foreclosure. The foreclosure process begins at different times depending on the lender but many start the process when you are 90 days behind on your mortgage payments. If you’ve missed more than three months worth of payments, you will receive a letter from your lender stating they will begin the foreclosure process. This letter is called a Notice-of-Default and it informs you that you’re behind on our payments. This is the first indication that your lender is making moves to foreclose on the property and you are now in the pre-foreclosure stage. From the time of receiving the Notice-of-Default, you have 90 days in which you can catch up on your payments. If you are still behind on payments then a Notice-of-Trustee will be filed, which means that the property will be sold by the lender. This document is also called a Notice-of-Sale. An auction of the home will likely follow about 21 days after the Notice-of-Trustee is filed, but you will still have within 5 days after the auction to pay and avoid foreclosure.
Once you know you are unable to make your mortgage payments, foreclosure is a possibility. However, it doesn’t have to be the outcome. Given the associated timelines, you will want to make steps to preclude foreclosure during the pre-foreclosure period, or just before or after the Notice-of-Default has been filed. Below are some of your options.
Once you realize you cannot make your mortgage payments, contact your lender. The reality is most lenders do not want for the matter to be settled with foreclosure. There are a number of arrangements you can make with your lender. NEVER ignore mail from your lender. If foreclosure proceedings continue, ignorance will not be accepted as justification on your part. Once you receive correspondence from your lender, be sure to respond and see what your options are at reconciliation. What kind of agreements or arrangements can you make with your lender to get payments back on track?
Do this as early as possible. A loan modification is a written agreement that will lower your monthly payment for your mortgage. In fact, most lenders will prefer to work something out so that you can repay your mortgage than to evict you from your home. They may allow you to spread out your payments over a longer time period by instituting a payment plan, or even add the back payments onto your loan balance. These options will be offered depending on your individual circumstances.
In rare cases, your lender may forgive the debt and allow you to continue making payments when you know you will be able to. An example of this would be if you lost your job and had another job lined up. Your lender may be willing to waive your missed payments and allow you to pick up on your payments at the agreed time. Again, this rarely happens, but the option might be suitable for you based on your situation.
With a forbearance, the lender postpones legal action while you work out a payment plan that is suited to your situation. If you and the lender can come to an agreement, foreclosure proceedings halt. What you may have noticed is that in both of these options, you have to be open and honest with your lender. At this point, you will want to direct your efforts towards reassuring your lender that with redrafted conditions, you will be able to make your payments.
If you don’t believe that you’ll be able to make your mortgage payment even with loan modification, you may need to consider a short sale. In order to allow a shortsale, you will need your lenders permission, as they will assess the value of the home versus the amount left to be repaid. The services of a real estate agent or a real estate investor will be useful for this route. Though you will still lose your home, this option will prevent foreclosure on your record. It saves your credit.
A letter from the bank is not the worst that can happen. Even when faced with foreclosure proceedings, there are options available to you. Battling foreclosure will require you to be proactive, diligent and honest with yourself and your lender. Whether your intention is to protect your credit or to keep your home, your lender can suggest options to you based on your situation. Offers like loan modifications as well as debt forgiveness and forbearance can all get you back on the right track.
Do not be afraid to seek help. In the process, the experience of lenders, attorneys, real estate investors and agents all offer you tested and proven advice.
At Effortless Homes, we are real estate investors. We are here to help solve these types of complex real estate problems, FAIR and FAST. The earlier you contact us, the faster we can determine what help our team of investors can provide. Have Questions? See our “10 Fastest Ways to STOP Foreclosure” guide here for more information.