8 Steps to Prevent a Foreclosure On Your Home
Is Foreclosing on Your Home Looming on the Horizon? Read This First!
No one goes into owning a home with the expectation that they will have their home foreclosed. But as any savvy homeowner understands, sometimes the unexpected just happens in life. Perhaps because of an emergency, a death in the family, or another financial crisis, things begin to go south when you miss payments. Before you know it, foreclosure is looming in the not-too-distant future.
Don’t panic. Dealing with a potential foreclosure is never easy, but it is possible to work your way through the process, and even stop it from happening at all. There are free resources available to help prevent foreclosure, and you can learn more about avoiding foreclosure when you review the following steps. This way, you’ll make more informed decisions, and whatever stage of the foreclosure process you find yourself in, you will be aware of your options.
Understand What Foreclosure Actually Is
Understanding foreclosure is one of the first keys to preventing it from happening. Foreclosure is a legal process in which a lender moves to repossess a home from a borrower following missed mortgage payments. If the home is repossessed, the lender will likely sell the home in order to recover some of the debt.
Foreclosure is a long process that negatively affects the credit of the borrower, but is also undesirable and costly for the lender. This means that it is in the best interest of the lender to work with you to avoid foreclosure.
Identify Which Stage of Foreclosure You Are In
Once you understand the process in more general terms, knowing what stage of foreclosure you’re in can help you to make appropriately informed decisions. With this in mind, there are four stages leading up to a foreclosure that you need to be aware of.
The first stage is missing payments. For whatever reason, the mortgage bill goes unpaid. As soon as you realize that you cannot make your payment, you should get in touch with your lender. There are many options to changing your lending agreement.
After 3 to 6 months of missed payments, the public notice stage begins. At this point, your lender has filed a document called a Notice of Default (NOD) with the County Recorder’s Office. You should also receive a notice posted to your front door in order to make you aware of the potential foreclosure.
After the Notice of Default has been posted, you will enter the pre-foreclosure stage. This notice activates a grace period of anywhere from 30 to 120 days, during which the borrower may pay the outstanding mortgage payments. If these payments are paid in full, the foreclosure is then dismissed.
Following the grace period, your home may be prepared for auction. Even at this stage, you still have options! Until the house has actually been sold, the borrower has something known as a Right of Redemption. This means that up until the moment at which the house is being sold at auction, the borrower can repay the debts and reclaim their home, thus ending the foreclosure.
If the home goes to auction, whether it is bought or not, it has still technically been foreclosed. In the event that a home is not purchased at auction, it then becomes a bank-owned property.
Register With a Housing Counselor
If you’re still a little unclear about the process of foreclosure, the federal Housing and Urban Department provides free foreclosure prevention counseling. Foreclosure Avoidance Counseling is likely available at a location near you.
The HUD also provides a 24/7 Hotline through the Making Home Affordable program. This number is 1-888-995-HOPE (1-888-995-4673).
Working with a housing counselor can help you to understand your options and communicate better with your lender. By speaking to a counselor, you will gain greater understanding of your personal situation and options. Being better-informed helps you to make the best decisions for your specific situation.
Get In Touch With Your Lender
No matter which stage of foreclosure you find yourself in, it’s always the right time to get in touch with your lender. Foreclosure is a costly process for lenders, so naturally, they prefer to avoid it. Your lender can help you to review potential payment-plan options or non-foreclosure alternatives that benefit you both more than the home actually being foreclosed. Talk to your lender about potential loan modifications, repayment plans, or lowering your interest rate.
If you find yourself in the foreclosure process, cost-effective resources are available. Free federal and state government resources are available for foreclosure counseling, so if someone contacts you offering to help you for a fee, you’re wise to be be wary. Many scammers seek to profit from people who are in a desperate situation like this, and can be very convincing. You can find them anywhere, from the Internet to local newspapers, so remember to be vigilant.
Scammers may browse foreclosure notices posted locally and online to personally target borrowers. If someone contacts you directly, don’t accept help without first doing some research.
Review Your Options
Working with your housing counselor and this guide, carefully review your options. Which stage of foreclosure are you in? What is your lender willing to do to help you both? Identify your choices and consider which options are best for you.
If you are in one of the later stages of foreclosure (either pre-foreclosure or leading up to the auction), you may want to consider a short sale. By selling your property for less than the amount of the unpaid mortgage, a short sale occurs. This is beneficial because even though a short sale isn’t good for your credit, it is far less damaging than a foreclosure. In some agreements, the short sale absolves you of the mortgage debt, and allows you to move forward relatively unscathed.
Also, be sure to talk to your counselor about a Deed In Lieu of Foreclosure. This agreement transfers the ownership of the property to the lender, and clears the borrower of mortgage debts.
If you’ve already worked with an MHA counselor and your lender, but you want more guidance, consider looking into state-specific foreclosure counseling.
Assess your Assets
Do you have any assets that you can liquidate, like antiques, a second car, or an expensive stereo system? If anyone in your family can take a second job, you might consider this as a viable option. Even if the incoming cash from these assets may not be enough to make the full mortgage payments, it can still help you to avoid getting further behind. Plus, if your lender sees your efforts, they may be more likely to help you by adjusting the mortgage or working to develop a payment plan.
Consider Filing for Bankruptcy
It’s a big decision and one that should definitely be discussed with your housing counselor, but filing for bankruptcy can be an option. This tactic comes in the stage leading up to auction, and acts as a hard break, because filing for bankruptcy temporarily halts the foreclosure process.
If you file for bankruptcy, your creditors must stop collection efforts. Because foreclosure is a collection effort, the foreclosure is technically stopped. However, bankruptcy does not dissolve the debt; it simply extends the collection period.
Filing for bankruptcy has other implications and is a serious decision for anyone. Talk to your housing counselor about whether or not filing for bankruptcy might be the right option for you.
You Have Options to Help You Avoid Foreclosure
Life sometimes throws curveballs, and you can’t always prepare for the unexpected when you’re a homeowner. If you find yourself headed for foreclosure, don’t panic. Don’t avoid the issue, and don’t go at it alone. By educating yourself on the support options available to you, you can make the best possible decisions to help prevent foreclosure.