What to Do if You’re Facing Foreclosure
Are you currently facing foreclosure or fear you will be soon? If so, you know how scary and embarrassing the idea of losing your home can be, especially if you have a family or are feeling major stress from other parts of your life.
By educating yourself on the ins-and-outs of foreclosure, you can either avoid this scary process or navigate it as painlessly as possible should it occur.
Not sure what the signs of foreclosure are or what to do if you’re facing that situation? Here are some facts, tips, and best practices for anyone facing foreclosure and how you can possibly save your home.
What is Foreclosure & How Does It Work?
Foreclosure is what occurs when a homeowner fails to pay their mortgage, and in turn, forfeits all rights to their property. While the specifics of foreclosure vary based on state, there are some key stages that occur across all foreclosures.
Here’s a stage by stage breakdown of how foreclosure works:
Stage 1: Missed Payments
In the first stage of foreclosure, the homeowner, or borrower, misses their mortgage payments, commonly because of upsetting life scenarios like unemployment, divorce, or death. When this occurs, it’s essential to talk to your mortgage lender as soon as possible, as there are options to help you avoid forfeiting your home. The foreclosure process costs the lender money just like you, so in most scenarios, they’re willing to try to help you out to avoid it.
Stage 2: Public Foreclosure & Pre-Foreclosure
If you miss 3 to 6 months of mortgage payments, your lender will inform the County Recorder’s office that you’ve defaulted on your mortgage. Depending on the state you live in, the lender may be required to post a notice on the front door of your home, which indicates you’re in danger of eviction and foreclosure.
After receiving this letter, you’ll enter a grace period known as pre-foreclosure, which lasts from 30 to 120 days. During this time period, you have the opportunity to work an arrangement with your lender through a short sale or by paying the mortgage amount you owe.
If you work out an arrangement or pay off your default, the foreclosure will end and you’ll dodge eviction or home sale. If you don’t pay off your mortgage balance, however, the foreclosure process will escalate.
Stage 4: The Auction & Sale
The lender will set a date for your home to be sold at a foreclosure auction when you fail to pay off your mortgage amount during the earlier payment period. The notice of this sale is then delivered to the borrower, posted at your property, and then messaged in your newspaper. This auction will occur either on the steps of your local county courthouse, in the trustee’s office, or even possibly at your property.
Depending on where you live, you may have the right of redemption, in which you can stop the foreclosure process by paying off the balance. If you cannot, your home will be sold to the highest bidder who can pay in cash. At this time, you can also make an arrangement with your lender, known as a deed in lieu of foreclosure, and take your property back, or the bank will repurchase it.
If a third party doesn’t buy your home at the foreclosure auction, the lender will take ownership of it. At that point, it’ll be known as a bank-owned or real estate owned property. The property will then be listed by a local real estate agent or sold at a liquidation auction.
What to Do If You’re Facing Foreclosure
Now that you know how the foreclosure process works, you’re probably wondering the ways you can prevent this from happening. Here are some great strategies for approaching this process in the best way possible:
Strike a Deal With Your Lender
As we mentioned earlier, your lender most likely doesn’t want to deal with your home’s foreclosure. So if you can’t make your mortgage payments, reach out to your lender as soon as possible to see what your options are. Discuss alternative payment options with them, and see what financial steps you can take to avoid foreclosure.
Look into a Short Sale
If you know you’re home is most likely going to be foreclosed, you may want to look into a reasonable short sale. Consider putting your home on the market, and look into buyers, even when your lender has already started the foreclosure process. Take steps to sell your home as soon as possible, and convince your lender that the best move for them is to let you do a short sale.
If you want to avoid the whole listing process, there are ways to quickly sell your home, and avoid having to work with real estate agents.
Consider Filing for Bankruptcy
A last-ditch way of stopping foreclosure is filing for bankruptcy. Once you do this, your mortgage lender and debt collectors will be prohibited from engaging in their collection activities. If this happens, the bankruptcy trustee will play the role of mediator between you and your creditors.
It’s important to know with this option that this option only buys you some time to recover financially, and doesn’t actually let you off the hook. Bankruptcy law will simply set you and your creditors up to create a reasonable payment plan to help you get back on track.
Before you file for bankruptcy, chat with a bankruptcy attorney to determine if this is the best option for you.
Get a Deed In Lieu
In this scenario, you sign over the deed of your home to the bank by choice through a deed in lieu. This scenario isn’t always appealing to your mortgage lenders because they’ll be forced to pay any second or third mortgages or home equity lines of credit. While deeds in lieu of foreclosure are usually not granted, there are some scenarios when you may have it granted:
- Foreclosure is imminent
- You have no junior loans or liens
- You can document your financial hardship
If any of these scenarios apply to you, you may have a shot of being granted a deed in lieu!
Final Thoughts on Foreclosure
Facing foreclosure is scary, but there are ways to prevent it or handle it in a less scary and stressful way. By educating yourself on how the process works, you can be ready to handle it should it ever occur.
Do you live in Boise? Need to sell your house fast? Contact us to see what we can do for you!