Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. Foreclosures often begin when the borrower stops making payments. The loan then becomes delinquent and the homeowner goes into default. The default status continues for approximately 90 days. During this time, the lender will get in touch with the borrower to see whether they will be able to pay the balance of the loan. If the borrower cannot pay, the lender may file a Notice of Foreclosure, which begins the process.
Missing a house payment by a few days will not put you in danger of foreclosure, but if you still have not paid by the end of the grace period, your mortgage lender will send you a past-due notices. If you are multiple mortgage payments behind, you need to act quickly to get your mortgage back in good standing.
Reasons for a Pending Foreclosure
Few people who sign a mortgage intend to walk away from it. Still, unforeseen circumstances can overwhelm even the best intentioned borrower. Here are a few of those reasons:
- Unexpected unemployment
- Job demotion or promotion denials
- Sudden illness or medical emergency
- Death in the family
- Excessive debt obligations
- Interest rate increase
- Unexpected major home maintenance expense
- Balloon payments due
Ways to Stop a Foreclosure
If you are facing foreclosure, you might be able to stop the process by filing for bankruptcy, applying for a loan modification, or filing a lawsuit. As soon as you realize that you will not be able to make your monthly mortgage payments, contact your lender and inform them about your financial difficulties. They may be willing to work with you to create a plan. Continue paying your bills though! You do not want to wait until you cannot make payments before you act. Though you may feel scared or embarrassed, immediately begin working with your lender to avoid foreclosure on your home. Learn more about how to talk to your lender about trouble making payments.
Forebearance: Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you.
Repayment Plan: Your lender might allow you to spread out the missed payments over a longer term by adding as little as $100 a month to each payment until you are caught up.
Loan Modification: If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you.
Refinance: If you have sufficient equity and meet the lender’s lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan.
Partial Claim: Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments.
Debt Forgiveness: If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This rarely happens.
Options After a Notice of Default
When the lender files a Notice of Default, your options are limited. That is why it is better for you to contact your lender before falling behind on your payments because lenders are often reluctant to work out repayment schedules after foreclosure proceedings have been started.
You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure, and stop the foreclosure in a process called reinstatement. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:
Sell Your Home: Selling your home can allow you to keep more of the equity. Locate a real estate agent that is familiar with foreclosure investing.
Short Sale: If your home is worth less than the amount you owe, you might be a candidate for a short sale. A short sale affects credit but it is not as bad as a foreclosure. You or your agent will need to negotiate with your lender to find out if the lender will cooperate on a short sale.
Short Term Rental: The lender might allow a homeowner to remain in the home until finding alternative arrangements.
Bankruptcy: A legal action such a bankruptcy can stop all foreclosure action. You will need to contact a lawyer who specializes in filing for bankruptcy and ask for a thorough explanation of all your options, costs and time frame involved. It will not permanently stop a foreclosure action but it can postpone it.
Sometimes, there is no way to save your home from foreclosure. The good news is that it is possible to rebuild your credit afterward so you can someday own a home again. Focus on paying all your bills promptly and paying down any other debts you have, such as credit card balances. After about two years, you should see your credit score start to recover.
When you are finally ready to buy a house again, learn from your mistake so you do not end up with another mortgage you cannot afford. Before you bid on a house, do the math and make sure the monthly payment does not eat up too much of your income. The lower you can get the payment, the better your chances of being able to keep the house if you face another financial setback.
Call Citrus Heritage Escrow today with any questions or concerns. Our professional Escrow Agents will help you with questions and options. (951) 335-7200