Foreclosure occurs when the lender or mortgage servicer seizes the property after the homeowner fails to make their mortgage payments and falls too far behind. This process is overwhelming for any individual facing it. However, there are legal options available that can prepare you to know what steps to take next.
Also, there are some practical ways to avoid foreclosure in general. The main priority for preventing this type of situation is to avoid missing or being late in making your mortgage payments. It is recommended to communicate with your mortgage servicer and inform them of your situation beforehand.
What Happens in Foreclosure?
Foreclosure processes depend on which justification you reside in. There are several ways the foreclosure process is initiated. For instance, in some states, the servicer needs to go to court to foreclose on your property, and this is referred to as judicial foreclosure, but other states do not require a court process, which is also known as non-judicial foreclosure. Then, a notification is sent to the borrower once the lender or servicer starts the foreclosure proceedings.
Federal law mandates that a servicer cannot start foreclosure until your loan is more than 120 days past due. Foreclosures are expensive, and additional fees are incurred with the missed mortgage payments you still owe. Some of these fees can consist of title search fees, attorney fees, and property preservation fees.
Furthermore, the Making Home Affordable (MHA) Program is a broad strategy to assist homeowners in avoiding foreclosure. They aim to stabilize the country’s housing market and improve its economy. Homeowners can apply to receive lower rates. Moreover, there is a way for homeowners to avoid foreclosure once it becomes no longer affordable.
What Are Some Practical Ways to Avoid a Potential Foreclosure?
There are some practical ways to avoid a foreclosure. Below is a brief explanation of these methods that are used. There is a mortgage repayment plan that allows you some time to make the payments in installments over the next couple of months. This is meant to provide short-term relief from the lender to the borrower.
Another one that can be utilized is a loan modification, where mortgage servicers can permanently adjust the terms of your loan. They usually change the length of the schedule, lower the interest rate, or roll the delinquent amount into another balance to assist you with bringing the loan to the current account.
Furthermore, another method many use is a deed-in-lieu of foreclosure, which involves voluntarily turning over your home to a lender to avoid foreclosure proceedings. Depending on your lender’s rules and jurisdiction, you could avoid paying the remaining loan balance on your mortgage. Before you obtain a deed-in-lieu of foreclosure, determine if your lender will waive any deficiency. Deficiency is the difference between your home’s value and what you still owe on the mortgage.
Moreover, a short sale can also be one of the ways to avoid a foreclosure. A short sale occurs when the lender permits you to sell the house for less than the outstanding loan amount and allows you to keep the proceeds while forgiving any remaining debt. A short sale could salvage some of your equity, but the lender has to allow it first.
Lastly, you can do the short refinance option, where the lender forgives some of your debt and refinances the rest into a new loan. This type of refinance is more commonly utilized and may not be available to many homeowners. Therefore, you need to refinance with hard money funds. You need to apply for a loan to obtain the funds needed to refinance.
There are many ways to apply for a loan, and you can apply either with a private lender or an individual. Depending on your new lender, you will have new loan terms. Generally, the new loan will have better rates to refinance the home and provide you with the time you need to pay the past due mortgage payments. This will help you in preventing foreclosure.
What Is Mortgage Delinquency vs. Foreclosure?
There is a difference between mortgage delinquency and foreclosure. Mortgage delinquency occurs when you have not made at least one mortgage payment 30 days after the deadline. This can lead to a foreclosure; however, the homeowner who is in delinquency can prevent a foreclosure. During this stage, the homeowners must pay late fees, which can impact their credit scores. However, you may still be able to keep your home.
Typically, the foreclosure process initiates when a borrower misses a monthly payment by at least 30 days. However, the foreclosure process usually starts after the loan is 120 days delinquent but can be sooner in some scenarios. If the homeowner continues to miss payments and does not take any action to rectify the situation to work towards making a payment, then the lender’s final action is to take possession of the home.
As briefly mentioned earlier, another way to avoid foreclosure is to create a workable repayment plan that works with your budget. You can spread out the missed payments over a longer term. For instance, if your monthly payment is $1,200, and you miss one, the lender might let you add $100 a month to each payment for a year until you are at your current balance.
A repayment plan allows you to divide the total amount you owe into smaller monthly payments until you can repay the total amount of payments you missed. Repayment is viable if you have a financial emergency or lost your income quickly. This can allow you to keep your balance current and make payments regularly.
In some situations, the banks do not write repayment plans, and you will not be considered current until you repay all your missed payments. But, if you fail to abide by the repayment plans, the bank will have the authority to seize your home for foreclosure.
Furthermore, if your house is worth less than your mortgage, a new mortgage company may not provide you with a new loan. Homeowners have special refinance options under the federal Home Affordability Refinance Program. This is considered an option for homeowners whose homes are worth less than their loan amount.
In any situation, it is important to communicate earlier on with your lender to inform them about any financial hardship. Planning will avoid foreclosure from your lender, and they can allow you time to keep your account balance current due to any financial hardships. You need to show that you can pay back the missed payments soon.
Lastly, they might agree to stop foreclosure if you plan to sell your home. This is known as forbearance; you can inquire more about this with your bank.
When Do I Need to Contact a Lawyer?
There are practical ways to avoid a foreclosure, as stated earlier. You need to be current with your monthly mortgage payments at all times. The lender does not suddenly foreclose your property, and you must miss a certain amount of payments and be unable to pay it for some time.
If you find yourself in a financial situation that will not allow you to make those monthly payments, several options are available. You need to seek a local foreclosure lawyer immediately to understand your options.
