Ways To Stop A Foreclosure
Once youve missed 3 or more months of payments and are in default or in preforeclosure, your options for stopping the foreclosure process will depend on how far along you are and what your financial situation looks like. Its best to speak with your service or about options as soon as you know that youre going to miss payments so they can see what they can do to help you get back on track and possibly refinance to avoid foreclosure.
Get The Home Inspected To Determine Additional Costs
Contact a home inspector to look over the home you want to purchase. They will give you a detailed report of repairs needed, and point out any potential problems with the home’s foundation or overall structure. Some home inspectors also provide a cost estimate for the repairs. This will help you determine if the house is still in your price range after considering the work that needs to be done. Note that this is not the case with auctioned foreclosure properties because you have to bid on and purchase them before you can do an inspection, so weigh your options carefully.
How Do Foreclosures Relate To Debt
Some people find themselves facing foreclosure because of mounting debt that makes it hard to make mortgage payments.
A foreclosure can add to financial problems, particularly if your state allows a deficiency judgment, which means the borrower owes the difference between what is owed on the foreclosed property and the amount it eventually sells for at an auction.
Thirty-eight states allow financial institutions to pursue deficiency judgments against borrowers for this money.
If a lender does not seek a deficiency judgment, a foreclosure can relieve your financial burden. Although it is a loss when a lender takes the home you partially paid for, it can be a start to rebuild your finances.
It is a good idea to work with a financial adviser or a nonprofit credit counselor to understand what kind of debt you may incur during a foreclosure.
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Foreclosure Process Step : Notice Of Sale
If the homeowner hasnt come up with the money within 90 days of the notice of default, the lender may proceed with the foreclosure process. Next comes a notice of sale, which will state that the trustee will sell the home at auction within 21 days.
A notice of sale is also sent via certified letter to the homeowner, but it also must be published weekly in a newspaper in the county where the home is located for three consecutive weeks before the auction date. This helps get the word out to potential buyers, but even at this late date, the option to reinstate your mortgage is still possible up until five days before the sale, so long as you can come up with the money.
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Make Offers On Homes That Fit Your Needs And Price Point
The way you approach this step depends on the type of foreclosure home you want to purchase. If you plan to buy one that is real estate owned or government owned, you or your agent have to make an offer to the real estate agent working with the bank to sell the home, or to the government agency itself.
If you want to purchase a foreclosure home that is about to go to auction, you or your agent have to make an offer to the person in charge of the auction. In pre-foreclosures, you or your agent have to make an offer to the homeowner.
If you’re using a real estate agent, work with them to establish a contingency plan as part of the offer to make sure you can have the home inspected before your purchase is finalized.
What Is The Foreclosure Process
As a reminder, foreclosures are a process and do not happen overnight. Before a mortgage lender can begin the foreclosure process, the homeowner must be at least 120 days delinquent in mortgage loan payments. Once it has been established that the mortgage loan is in default, the four phases of foreclosure begin. As mentioned previously, the amount of time for each phase varies depending on which state you live in.
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Why Do Homes Go Into Foreclosure
When a person buys a home, the bank that lends the money for it undertakes a rigorous process to make sure the borrower can afford to pay. About 70% of mortgages last for 30 years, and unforeseen circumstances can cause someones financial situation to change dramatically.
Many homeowners found that out during the COVID-19 pandemic. Loss of a job or reduction in income led more homeowners to fall three months or more behind on mortgage payments than had since 2010, the height of the Great Recession. By June 2021, 15 months into the pandemic, 1.9 million Americans were still three months or more behind on mortgage payments. But it doesnt take a global pandemic to dramatically change financial circumstances.
Major reasons for foreclosures are:
- Job loss or reduction in income
- Debt, particularly credit card debt
- Medical emergency or illness resulting in a lot of medical debt
- Divorce, or death of a spouse or partner who contributed income
- An unexpected big expense
- Moving without being able to sell the home
- Natural disaster
Foreclosure Process Step : Notice Of Default
If a borrower cant come up with the funds to pay what he or she owes, a lender will issue a notice of default. This form will be sent to the mortgagee in the mail via a certified letter, and it typically gives a homeowner 90 days to pay off the most recent bill.
This step marks the beginning of the formal and public foreclosure process, Zuetel says.
Theres still time to save your home after a notice of defaultif you can find the cash. One option is a mortgage reinstatement, whereby you reinstate your mortgage by making up all the missed payments at once, plus interest and lender fees. Youll then go back to paying your monthly bill as usual.
Foreclosure And The Coronavirus Pandemic
During this pandemic, which has created extraordinary hardship for millions of people, there are relief options available to homeowners. If you have a government-backed mortgage , youâre protected under The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. This allows homeowners to get into a forbearance program if theyâre unable to make their mortgage payments because of COVID-19. Currently, there is no expiration date for this benefit.
âForbearance is not automatic, you have to request itâdonât just stop paying your mortgage,â says Cristian Salazar, deputy director for communications at the Center for NYC Neighborhoods, a nonprofit that promotes affordable homeownership in New York. âContact your servicer and explain that you have been affected by COVID-19. Itâs critical that you make every effort to pay your mortgage until you have the opportunity to speak with your servicer.â
Stopping payment on your mortgage before speaking to your servicer could put you at risk of being ineligible for future relief, Salazar says.
Here, weâll go over the basic foreclosure process and what you can do to avoid foreclosure. Keep in mind, foreclosure procedures and laws vary by state.
Once A Foreclosure Action Begins
You have the right to receive a copy of the legal papers in the foreclosure lawsuit when it begins. This is known as service of the Summons and Complaint. You must respond to the Summons and Complaint with an Answer within 20 days after you have been personally served, and within 30 days if served on you by other means. The Answer is your opportunity to state your defenses.
You should consult with an attorney or housing counselor for help in this process.
You have an obligation to appear at all scheduled court appearances. If you fail to appear, you risk losing important rights, which could lead to the loss of the case and your home.
You have a right to request court permission to proceed without paying court costs.
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File A Lawsuit To Stop The Foreclosure
If your bank is using a nonjudicial process to foreclose, where the foreclosure is completed outside of the court system, then you might be able to delay or stop the foreclosure by filing a lawsuit against the bank to challenge the foreclosure. You’ll need to include a motion for a temporary restraining order and preliminary injunction to enjoin a foreclosure sale while your claims are being litigated.
To prevail, you’ll need to prove to the satisfaction of the court that the foreclosure should not take place because, for example, the foreclosing bank:
- can’t prove it owns the promissory note
- didn’t act in compliance with state mediation requirements
- violated a state law, like a Homeowner Bill of Rights law
- didn’t follow all of the required steps in the foreclosure process , or
- made some other grievous error.
The downside to suing your bank is that if you’re unable to prove your case, you’ll only delay the foreclosure process, perhaps briefly. Lawsuits can be expensive and, if you have no reasonable basis for your claims, you could get stuck paying the bank’s court costs and attorneys’ fees.
Ask the Servicer to Postpone the Sale
If a foreclosure sale is at hand, you might consider asking the servicer to postpone it. Usually, the servicer won’t agree to reschedule a foreclosure sale, but it doesn’t hurt to ask.
Consequences Of A Foreclosure
The main outcome of going through foreclosure is, of course, the forced sale and eviction from your home. Youll need to find another place to live, and the process could be extremely stressful for you and your family.
How foreclosures work also makes them expensive. As you stop making payments, your lender may charge late fees, and you might pay legal fees out of pocket to fight foreclosure. Any fees added to your account will increase your debt to the lender, and you might still owe money after your home is taken and sold if the sales proceeds are not sufficient .
A foreclosure will also hurt your credit scores. Your credit reports will show the foreclosure starting a month or two after the lender initiates foreclosure proceedings, and it will stay on the report for seven years. Youll have a hard time borrowing to buy another home , and youll also have difficulty getting affordable loans of any kind. Your credit scores can also affect other areas of your life, such as your ability to get a job.
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Understand The Options For Buying A Foreclosed Home
There are two main ways to purchase a foreclosure:, at an auction or from a lender after they have failed to sell at auction.
Purchase Through Short Sale
A short sale occurs when the homeowner sells a home for less than what they owe on the mortgage because the value has declined. Foreclosure has not been completed. The homeowner still owns the home so you work through their REALTOR®.
When you buy a home in a short sale, the lender needs to approve your offer. You might spend a lot of time waiting for approval.
Purchase At Auction
Youll get a home faster at auction than you would if you negotiated with the bank or a seller. Homebuyers also have the opportunity to buy a property significantly below at auction. However, most auctions only accept cash payments, which means that youll need to have a significant amount of money ready for the purchase.
If the auction does allow for financing through a mortgage, you want to make sure that you have a preapproval ready. Its important to realize that not all approvals are the same. We recommend a Verified Approval1 where your income and assets are verified.
By purchasing at an auction, you also agree to buy the home as-is without an appraisal or inspection. This means you take a big risk when you buy a foreclosed home at an auction. Speak with a real estate attorney if this is something youre interest in.
Purchase From A Lender
Mortgage Forbearance And Loan Modification
Despite how your lender might come across, they probably want to avoid the foreclosure almost as much as you do. Foreclosure is a time-consuming and expensive process. On top of that, the lender loses out on monthly mortgage payments. So most lenders would rather work with you to find a way to avoid foreclosure. This is why the pre-foreclosure process includes loss mitigation.
Loan modification is one loss mitigation option. This is where you and your lender agree to change one or more of your mortgageâs terms to make your monthly payments more affordable. Potential changes may include:
Turning the adjustable interest rate into a fixed interest rate.
Lowering the interest rate if you have a fixed interest rate already.
Extending the mortgage loanâs term.
While not generally a part of loss mitigation, another way to help avoid foreclosure is with mortgage forbearance. This is an agreement between you and your bank where the bank agrees to reduce or suspend your mortgage payments for a set period, often three to six months. When the forbearance period ends, youâll need to make up the missed mortgage payments with:
A lump-sum repayment.
A payment plan. This will increase your regular monthly mortgage payments until all the missed payments are repaid.
A mortgage loan modification.
A payment deferral. This is where missed payments get paid back when the house gets sold, the mortgage loan is refinanced, or the mortgage loan matures.
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What Should You Not Do During A Foreclosure
It has already been alluded to, but the most important thing to NOT do is ignore the entire situation. When you receive that initial notice of default from the bank, the very best thing you can do is respond to it.
Typically, the bank honestly does want to keep your home from being foreclosed on. So, do not ignore the calls and letters that you get. The next thing you should refrain from is just walking away.
Not only would just walking away make future home ownership more difficult, as previously mentioned, if a home is foreclosed on the homeowner would need to pay the difference between the selling price and the money that is owed for the mortgage.
If you walk away, you could owe more money than if you would have stayed in the home a few more years. Home values are on the rise, and working with the bank or a financial advisor could help you stay in your home and sell it for more.
Find Foreclosures For Sale
Although your real estate agent will likely be able to help you search for foreclosures, you may want to investigate for yourself as well. The internet has made it much easier than it used to be to find foreclosures in your area and in other parts of the U.S. There are now multiple different areas of the web where you can search. Here are three we especially recommend:
- Rocket Homes: This online repository for real estate listings will even tell you what type of foreclosure you are dealing with.
- HUD: This official government website lists foreclosed homes. There will be a real estate agent listed whom your own agent can contact.
- Fannie Mae HomePath®: Here you will be able to search for foreclosure listings by address, ZIP code or MLS number.
- Freddie Mac HomeSteps®: This is Freddie Macs answer to the Fannie Mae foreclosure site, with very similar functionality.
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