In a traditional mortgage, your lender may try to initiate the foreclosure process if you can't make your payments on time. This process begins with pre-foreclosure, the “unofficial” beginning of the foreclosure process, which can range from a few weeks to over a year depending on your state. Through foreclosure, your lender will repossess your property and force you to move out, and you could lose all your equity in the property.
A homeowner should do everything in their power to prevent the foreclosure from occurring. There are ways to avoid foreclosure, even if you are behind on your payments. Let’s take a closer look.
Foreclosure is a legal process where lenders file court paperwork to exercise their right to repossess a property for which they’ve lent money. Foreclosure laws can vary depending on local and state laws, but the process is generally similar.
In simpler terms, foreclosure is the process of a lender repossessing your home after you default on mortgage payments.
Foreclosure is not quick or straightforward. Foreclosure can take a very long time (sometimes more than a year, depending on your state of residence). This is all dependent on if the state uses the courts or not to complete the process (judicial vs. non-judicial).
The foreclosure process starts when you enter delinquency, meaning you’ve missed a mortgage payment, and your lender sends you a notice of default.
The notice of default tells you:
Lenders must send you a notice of default if you default on your mortgage loan to any extent. They must also give you a certain amount of time, typically a few weeks or months, to make the necessary payments.
A lender may not be willing to accept partial payment and will only accept full payment to bring the mortgage current.
When you speak to a housing counselor or housing counseling agency, they’ll explore many foreclosure prevention methods, including loan modifications and short-sale; however, you most likely have other debt that needs to be paid off and these may not solve your entire financial situation.
Refinancing your loan may not always be possible, for example, if you have a low credit score or poor payment history), and you’ll need to be aware of real estate scams and other risks.
Naturally, you’ll want to avoid or stop foreclosure sales if possible. On the bright side, there are many ways in which you can keep your home and avoid foreclosure, even if you have missed one or more payments in the past.
The first thing you should do, regardless of circumstance, time, or how many payments you've missed, is to contact your lender. Remember this core fact: your lender does not want your property.
It is always less profitable for your lender to repossess your property and try to sell it than for you to keep it and make regular payments.
Your lender wants you to be in a financial situation where you can make regular payments to them, even if it’s at a lower amount than previously agreed. You can use this information when pursuing the other strategies below.
If you have trouble making your mortgage payments, don’t wait for your lender to send you a notice of default. Contact them immediately and tell them the issue so you can both work toward a mutually beneficial solution.
It’s also crucial to check your mailbox frequently and open and respond to any mail you receive from your lender. Your lender may use the mail to send you official notices, allowing you to keep track of your foreclosure timeline and critical deadlines.
Reinstatement can also be an effective means to avoid foreclosure. With reinstatement, you ask your lender if you can pay back however much you are behind on your mortgage in a single lump sum payment before a specific date. This essentially resets the slate and puts you back in good standing with your lender.
A short refinance means that your lender agrees to forgive some of your current debt and refinance the remaining amount into a new home loan, potentially with a lower interest rate. You might be surprised how many lenders are willing to do this, but remember that most of them want you to keep making payments, even if they are lower than what they initially expected.
A short refinance could be just what you need to get back on your feet if you lose your job or otherwise can’t make your original mortgage payments.
A forbearance is a great loss mitigation tool in a financial emergency, like an unexpected medical bill or job loss. Your lender could grant you a forbearance period if you explain your situation to them. A forbearance repayment plan temporarily lowers or suspends your payments for some time.
Then, later, you agree to pay back everything you owe and continue making regular payments on time. This is an excellent way to avoid foreclosure if you are only experiencing a temporary decrease in income and will be able to come current on payments at the end of the agreed-upon forbearance period.
Mortgage modifications are essentially refinanced mortgages. Speak to your lender and ask if they will change your mortgage's interest rate or term. They might be willing to do this if you've been a good borrower for most of the term and have only recently needed significant assistance.
The FHA offers loans for those who have missed payments or experienced financial hardship, even if they don’t have good credit scores. You can use these to avoid foreclosure proceedings if you can’t make monthly mortgage payments to your mortgage lender for the foreseeable future.
It’s important to note that getting approval for a loan modification may take a long time, and lenders will continue pursuing foreclosure. Additionally, while loan modification may be useful in some respects, it may not help your entire financial situation.
If you are 62 or older and have built up enough equity in your home, you can also use a reverse mortgage. A reverse mortgage is a type of loan that allows homeowners, typically seniors, to convert a portion of their home equity into cash or a line of credit.
Unlike a traditional mortgage where the homeowner makes payments to a lender, in a reverse mortgage, the lender makes payments to the homeowner. The loan is typically repaid when the homeowner sells the home, moves out permanently, or passes away.
Foreclosure can be scary, and every homeowner wants to avoid it. With Balance, you may be able to do just that.
That's because Balance can replace your current mortgage arrangement with co-ownership. In a nutshell, Balance will pay off your mortgage by providing an equity investment in your property. Your mortgage is paid off and you get the cash you need to pay off other debts and simplify your finances. Unlike a refinance, you don't need perfect credit to work with Balance.
In exchange, you’ll get peace of mind, simplified finances, and a fresh start – plus the financial wiggle room you need to rebuild your credit! Additionally, homeowners have the flexibility to refinance, sell, or buy Balance out anytime during the 7-year term.
With Balance, you don’t have to worry about losing control of your home. As a co-owner with Balance, you remain on title and in control. We help you make payments on your home and give you the freedom and breathing room to thrive again.
Because of these benefits and this unique co-ownership arrangement, plenty of homeowners like you have relied on Balance to help them get out of debt, avoid foreclosure, and even make homeownership and occupancy payments more affordable. We firmly believe we can do the same thing for you if you are falling behind on your mortgage payments
Balance has already helped homeowners facing foreclosure regain control over their lives and property.
We’re well-equipped and ready to look at your situation and make you an offer on your property, so contact us today to learn more and get started.
Sources:
Foreclosure Tips | HUD.gov / U.S. Department of Housing and Urban Development (HUD)
Saving Your Home From Foreclosure | Investopedia
What Is Foreclosure and What Is the Process Like? | Nolo
Loans | HUD.gov / U.S. Department of Housing and Urban Development (HUD)
