Dealing with financial problems is stressful, especially when you’re worried about making mortgage payments or trying to decide what to do if your house is in foreclosure.
Walking away may like the easiest thing to do, but that only complicates matters.
What you need is a guide to help you understand the legal process and make good choices from the beginning to the end.
What Is a Foreclosure?
A foreclosure is a legal procedure the mortgage company goes through to take possession of your property when you stop making payments or violate the terms of the loan.
A foreclosure notice is usually your first warning, but there is still much you can do to stay in your home or delay foreclosure. The entire process can last for weeks or even months, and your actions will influence the outcome.
What to Do If Your House Is In Foreclosure
If you’re affected by a natural disaster or recession, government agencies, such as the Consumer Financial Protection Bureau, may offer information on getting help with rent, utility, or mortgage payments.
First, you need to analyze your personal circumstances to find the best course of action. Then, you need to make payments if you can or immediately call the loan provider if you can’t.
If you’ve already fallen behind on your house payments and are facing foreclosure, don’t give up.
Options like getting a loan modification, filing for bankruptcy, or challenging the bank to stop foreclosure can help you save your home. Every situation is unique, but it’s always a good idea to act quickly.
Whether you buy a little time to figure out your next step or stop the foreclosure process entirely by selling to a real estate investor for quick cash, you have alternatives.
Both you and your mortgage company benefit by finding a good solution. In this article, we’ll talk about the pros and cons of foreclosure and how it affects your future. The better informed you are, the more control you’ll have over the process.
What Are the First Steps For a House In Foreclosure?
First, collect all the information about your financial situation and your loan. You’ll need mortgage statements, copies of your monthly bills, including car loans, student loans, and credit card statements, and details, such as income tax returns and pay stubs, to show how much you make each year.
Next, prepare to explain your current state of affairs. Why is it hard for you to make your house payment, and why can’t you find a short-term solution to the problem?
The mortgage company needs to know you’re willing to leave your property to avoid foreclosure, and they need to understand your difficulties to know how to find a suitable answer to your needs.
When you’re ready, call the mortgage company. Explain your situation, and discuss your options with them.
The better the lender understands your financial difficulties, the easier it will be for them to know what kind of help to offer.
What Does It Mean When Your House Is In Foreclosure?
When you sign a mortgage, you agree to pay back all the money you’re borrowed, based on the lender’s terms. If you stop paying, the lender can take legal actions to recover its losses. This is the foreclosure process.
Foreclosure doesn’t happen immediately after you run late with payments. Most banks give you a 15-day grace period to catch up on the loan, but you might have to pay a late fee.
If you haven’t paid in 30 days, you’ll get a notice of default, warning you about what will happen next.
When you haven’t paid for 90 days, the lender can start foreclosure, but it may not be too late to work out an agreement.
If you can’t adapt the loan or make back payments, the bank will send a notice telling you what you owe, including interest, and how to contact the lender’s attorney.
What Are the Consequences of Foreclosure?
Foreclosures can have lasting consequences:
- Emotional stress
- Loss of property and equity
- Harm to credit rating
- Potential charge for deficit after foreclosure
- Inability to get a Fannie Mae loan or buy another home for 7 years or longer
- Loss of relocation help or leasing options that come with other options
A foreclosure can affect your opportunities for getting housing, credit, or even jobs in coming years. You may have to wait seven years for your credit record to recover, but you can minimize the fallout from foreclosure consequences by being informed and prepared.
How Can I Slow Down the Foreclosure Process?
Depending on the specific details of your situation, you can take steps to slow down the process of foreclosure:
1. File for Bankruptcy
The fastest way to stop an imminent foreclosure is to file for bankruptcy. This immediately creates an “automatic stay,” and that stops the lender from trying to collect money or foreclosing the property. During the process of bankruptcy, all foreclosure measures must stop.
The bank can move for relief from the automatic stay or ask the court for permission to continue with the foreclosure. Although the court can grant this permission, it will usually take them a month or longer to act. Meanwhile, you’ll have time to look for other options.
2. Ask the bank to change the loan.
A loan modification works best when you request it early in the game, but you still might to able to delay the foreclosure. The bank can’t go ahead with legal actions while your application to mitigate the loss is pending, a legal process known as dual tracking.
If you get approval, the foreclosure will stop as long as you keep up with the revised payment schedule.
3. File a lawsuit.
Some lenders use a nonjudicial process to complete the foreclosure outside of the court system.
If so, you may stop or slow down foreclosure by suing the bank. You can’t stop judicial proceedings, however, because you’ve already waived your right to contest the court.
For this to work, you need to persuade the court to stop the foreclosure for reasons like these:
- Failure of the bank to comply with state mediation regulations
- Inability of the bank to show promissory note
- Violation of Homeowner’s Bill of Rights (depending on state laws)
- Omission of one or more of the required steps in the legal process (depending on state laws)
- Other serious mistakes
Be aware that filing a lawsuit against the lender could have a downside, especially if you don’t have a strong case. If you lose, you could end up reimbursing the bank for its legal fees and court costs.
4. Hire an attorney.
It’s expensive to hire a lawyer, but it may save you money in the long run. An experienced real estate attorney can prevent you from making costly mistakes like further damaging your credit by not knowing your lender won’t take payments after starting foreclosure or knowing the bank will pay off your back taxes and insurance premiums after foreclosure.
What Are the Alternatives to Foreclosure?
If your home goes into foreclosure, it will sell in a forced public auction, and you will be liable for the entirety of the amount on your first mortgage.
You’ll have little control over the moving date, and eviction is possible. The foreclosure will go on, and the lender will confiscate your property. You may not qualify for a Fannie Mae loan for seven years.
One alternative to foreclosure is a deed-in-lieu, or mortgage release. In this scenario, you can transfer the title back to the original owner, and the bankruptcy will stop right away.
You can get a Fannie Mae loan in two years, and you may qualify for relocation expenses of up to $3,000. You may qualify to lease your home for one year, and the lender might forgive some of your first mortgage.
Another option is a short sale, a legal process in which you voluntarily give the right to your home to a qualified buyer. If you agree to a short sale, the foreclosure stops, and you can apply for a Fannie Mae loan in as little as two years.
You may still be responsible for a portion of the first mortgage, but you might qualify for up to $3,000 in relocation expenses and possibly get more time to move to a new home.
Before you declare foreclosure, find a short sale buyer, or agree to a buyer release, make sure you are dealing with someone who has integrity and experience.
If none of these alternatives suit your needs, consider talking to a reputable investor buyer. You may be able to sell your home quickly and avoid lengthy alternatives that hurt your credit record.
How Can I Avoid a Scam?
Homeowners who need to sell quickly can be easy prey for scam artists. Never pay homebuyers who charge for their advice when you can get free counseling from HUD-approved agencies for free. Remember the old saying: If it sounds too good to be true, it probably is.
Ask yourself these questions: Did someone ask you to pay for counseling? Did they promise to modify your loan if you signed over your home, redirected your loan payments, or stopped making payments? If so, you may have been the target of a con game.
The Final Decision
Even with the best of advice from qualified mortgage counselors and investment buyers, only you can decide which course of action is best to resolve your immediate needs and maximize your financial options for the future.
Remember that regulations can vary, depending on laws in the state where you live. For more information about what to do if your house is in foreclosure, ask for free counseling from trained HUD advisers and certified home mortgage counselors.
If you want to know more about selling to a private investor, visit our website and fill out a 60-second survey for a fair, fast cash offer. Our firm has local experts in locations across the United States, and we charge no hidden fees or closing costs. Contact us today to find out if you are eligible for our services.