Changing financial conditions can force any homeowner to face foreclosure proceedings from a bank, financial institution, or mortgage loan company. Medical bills, job loss, adjustable interest rates, divorce, or unexpected expenses are just a few of the reasons that a home could easily be lost. Foreclosure, without question, is one of the most devastating life events that a homeowner can face. If you find yourself facing foreclosure, don’t worry you have options that can save your house. These options can help to save your home from foreclosure and may actually help you to come out ahead financially in the long run.
What is Foreclosure?
Foreclosure is the action that a lender takes to gain possession of a property when a borrower fails to makes payment. Foreclosure begins when you receive a notice of default by the lender. This typically occurs after three straight months of nonpayment. Some lenders will allow you to go up to six months without paying your mortgage before initiating foreclosure proceedings. The lender will then send a foreclosure letter stating the lender’s intention to retake possession of the property.
The foreclosure process and proceedings vary by state. The nonjudicial foreclosure process can be completed in only a few months whereas a judicial foreclosure process can take as long as four years. Once the foreclosure process has begun, lenders will seek to collect the total outstanding balance of the mortgage owed along with penalties and late fees. The worst thing that a borrower can do is nothing during the foreclosure process. Once foreclosure has been completed, the lender will auction off the home and sell it. Foreclosure can leave a borrower homeless, with a bad credit score, and owing money for a home they no longer possess.
Fortunately, for borrowers there are a number of homeowner protections that can allow you to save your home from foreclosure.
Ways To Save Your Home From Foreclosure
Pursue a Loan Modification
A loan modification is a permanent adjustment to your mortgage. It is a long-term solution that will make your payments affordable. The bank will require documentation such as bank statements, income documentation (W2 or 1099), possibly a profit and loss statement, listing of bills, IRS form T- 4506, and a hardship letter. The terms of the modification will involve one or more of the following: lowering your interest rate, extending the length of the loan, and/or forgiving the default amount.
The good news is that even if your loan has been modified before you may still be eligible for another modification; however, it will probably be a streamlined modification. A streamlined modification requires less documentation, but normally involves a large balloon payment at the end of term of the loan or when the home is to be sold.
If you have undergone a major financial hardship, then you can request forbearance. Forbearance is when a bank temporarily suspends or lowers your mortgage payment because of a temporary financial hardship. Job loss, divorce, or illness are some of the reasons that a lender may grant forbearance. Forbearance will grant you a temporary reprieve but is not a long- term solution as the bank will require you to eventually make up for missed or reduced payments.
Ask for a Repayment Schedule
This is where the bank will develop a plan for you to make your regular payment and pay an additional set amount to catch up on your missed payments. This option is normally available if you are three payments or less behind on your mortgage.
Catch Up Through a Reinstatement
Reinstatement restores the mortgage back to its original condition. Reinstatement of a mortgage requires you to make a one time payment that brings the delinquent amount current. You do not have to pay off the entire loan amount; just the amount that is past due. This single lump sum payment covers all of the mortgage payments missed, penalties, and late fees. This removes the home from foreclosure and cures the default.
Reinstatement is a good option for those who can raise or borrow the funds to keep their mortgage up to date. This is the best option for those who can afford it as it brings the loan current but does not require the borrower to fully pay off the loan.
Request a Deed in Lieu
This is where you agree to surrender the deed to your house to the bank instead of them having to go through foreclosure proceedings. You surrender ownership of your home to the bank instead of going through the foreclosure process. You have to send a written letter to the lender requesting a Deed in Lieu of foreclosure. You may have to provide the lender with financial information proving that you are unable to pay the mortgage. Once the lender agrees, you sign a quit claim deed in which you transfer title to the lender.
Depending upon your situation, the bank may actually offer you a few thousand dollars to leave the home and surrender the deed. This is beneficial to the bank because they receive the home in better condition without having to worry about an angry homeowner destroying the property while going through the foreclosure process. If you choose this option make sure that the bank agrees not to come after you for additional fees or the balance owed after resale of the home.
Do a Short Sale
Lenders will typically require you to attempt a short sale before agreeing to a deed in lieu of foreclosure. This is where you get the bank to agree for you to sell the house for less than what you owe. It’s a little less damaging to your credit, but has about the same impact as a foreclosure as far as your credit report is concerned.
Sell the Home
If you have any equity in your home you can just sell your house quickly and pocket the extra cash. You can sell your home before the auction occurs and pay the lender all loan amounts, penalties, and fees. Anything above the amount owed is cash that you get to keep. This keeps your from losing your home and preserves your credit.
Contact a Bankruptcy Attorney
Finally, if you really desire to keep your house and don’t qualify for any of the options above you should consult a bankruptcy attorney and see if you can restructure your debt. A bankruptcy attorney can use additional legal options which may help you to save your home from foreclosure.
Use all of the aforementioned resources to help save your home so you do not lose the largest contributor to your overall net worth.