Foreclosure is a scary idea for many homeowners. Not only does foreclosure mean you have to move, but it also stays on your credit report for seven years, making it very hard to purchase a home in that timeframe.
If you’re in pre-foreclosure, you still have options. This article will show you the step-by-step process of stopping foreclosure in Chicago.
If you fall behind on payments, the first step you should take is to reach out to your lender to try and negotiate alternative terms. If your lender has sent you a notice of default (a 30-day, 60-day, or 90-day notice), you’ve missed one or more of your mortgage payments — and that’s a sign that the mortgage is delinquent. However, it doesn’t necessarily mean that your lender wants to pursue foreclosure.
Foreclosures usually aren't profitable for lenders. It’s typically more profitable for them to work with their borrowers so they can continue making payments on the property. In some cases, this is true even if the lender receives less money from the mortgage than they initially anticipated.
If you contact your lender, they may see it as a sign that you want to avoid foreclosure and are trying to solve your financial difficulties in good faith. It’s important not to avoid your lender or ignore the documents they send you in the mail — these communications could give you insight into the best path forward.
When you speak with your lender, ask them if there is a path to reinstatement. "Reinstatement" means that you become current on your mortgage by paying back all the money you owe, even if it’s several months’ worth of mortgage payments.
If reinstatement is possible, you should try to do it as soon as possible. The longer you take, the less likely it is that you’ll be reinstated before foreclosure begins.
If you repay what you owe and become reinstated, you’ll continue with your mortgage lender as usual. This can be a helpful strategy if you’ve missed a mortgage payment for a temporary issue, but it might not be as easy if you’ve lost your job or accrued significant medical bills.
If you can’t come up with the money to get current on your mortgage loan, it might be a good idea to ask your lender for a loan modification.
A loan modification can include the following:
You can ask your lender what they are willing to do to help, then choose the best option.
What if you aren’t on good terms with your lender or know you won’t be able to pay back what you owe in the future? In that case, you might want to start looking for a short-sale buyer.
A short-sale buyer will purchase your property from you — however, the offer usually is not as much as you still owe on the mortgage (hence the name "short" sale).
Many mortgage lenders will accept short-sale offers if they’re large enough, as it will allow them to recoup most of their investment into the mortgage. However, not every lender will accept short sales as an option or may have strict requirements that make finding a short sale buyer challenging.
Another option is to offer your lender the deed to your house in lieu of foreclosure. Offering a deed in lieu of foreclosure means your lender takes sole possession of the property, and you’ll have to leave very soon.
A deed in lieu of foreclosure can benefit the lender by allowing them to try and recoup their losses — usually by pursuing a short sale or placing the property up for auction.
A deed in lieu of foreclosure will appear on your credit report for four years. While that’s not ideal, it does help to avoid a foreclosure that is penalized more heavily and stays on your credit for seven years.
As with a short sale, only some lenders will accept a deed in lieu of foreclosure, especially if you have a lower credit score or your home is in poor condition. If your home is in good condition, it’s more likely that your lender will accept the offer, as they could sell it for a decent amount after you’ve moved out.
If none of the above strategies work, or if you’re concerned about being able to make mortgage payments or other debt payments in the future, get in touch with Balance.
At Balance, we’re committed to giving homeowners a fresh start and helping them rebuild their credit, improve their cash flow, and complete necessary home repairs. If you’re approved for our homeownership program, Balance will pay you cash for an equity investment in your home.
As part of the equity investment, Balance will pay off your existing mortgage and provide cash out for you to pay off other debts, improve your finances, and complete home renovations. This way, you get the cash you need to get caught up.
In exchange for our investment, you'll make a monthly payment to Balance and share in the future value of the home.
You stay on title, and can buy us out at any time. In this way, working with Balance can help homeowners avoid foreclosure and provide the financial breathing room they need to thrive.
As you can see, there are many steps that you can take to avoid foreclosure and stay in good standing with your mortgage lender.
However, if none of these steps are viable, contacting Balance could be your best bet. With our help, you’ll have the opportunity to get your finances straightened out. Contact us today to learn more.
Sources:
What Is Foreclosure and What Is the Process Like? | Nolo
What is a mortgage loan modification? | Consumer Financial Protection Bureau
What is a Short Sale on a House? Process, Alternatives, and Mistakes to Avoid | Investopedia
What is a deed-in-lieu of foreclosure? | Consumer Financial Protection Bureau
