So you’ve missed a few mortgage payments, and now you received a notice from the bank about foreclosure. Don’t panic! We’ll give you six options to help you escape foreclosure and keep your house! Read on to find out what they are.
What is Foreclosure?
Foreclosure is a legal process initiated by a mortgage lender when a homeowner fails to make timely monthly mortgage payments. It involves the forced sale of the property to recover the outstanding mortgage loan. Your first missed payment will start a process that will trigger foreclosure proceedings, impacting one’s credit report.
To avoid foreclosure, homeowners can explore options such as loan modification, negotiating lower monthly payments, or pursuing alternatives like a short sale of their home or deed in lieu of foreclosure. Taking proactive steps is crucial in avoiding the detrimental effects on credit and the potential loss of the property through foreclosure.
Things to Know About Foreclosure Laws
There are few federal laws on the foreclosure process. The Real Estate Settlement Procedures Act (RESPA) is the important federal law to note. The important thing to know here for this article is that they guide some broad processes, but each state has its laws guiding its foreclosure process.
The different types of foreclosure
Each state decides whether to follow a nonjudicial foreclosure process or a judicial foreclosure process. Each sends a notice once a missed mortgage payment occurs, but the process thereafter varies according to state law.
Even within each process, there can be variables like the time before notice of foreclosure can be provided, if there can be a deficiency judgment, or even if there can be a redemption period. It may be essential to contact foreclosure prevention companies or an attorney who is an expert on the subject.
Options to Stop A Foreclosure And Keep Your House
Option 1 – Come up with cash to prevent the foreclosure process.
This may seem obvious, but it is the first one worth mentioning. Come up with the cash to make a lump sum payment to catch up your missing mortgage payments and stop foreclosure immediately.
Depending on your financial situation, the difficulty with doing this to avoid foreclosure is having the cash on hand. To do it, I recommend selling stuff you don’t need, like an extra car or those old toys from when you were a kid. (You should check those toys out on eBay anyway. They may be worth more than you think, and you could make extra money.)
Other options include cashing in some investments. It’s not ideal, but neither is facing foreclosure. This helps you get out of your financial hardship quickly.
Option 2 – Get a personal loan for foreclosure help.
There are a couple of ways to go about doing this. The first one is to go to someone you know who has the money to lend and ask them. These could be unsecured debts based solely on your relationship with your lender. Some would consider this a private lender. It’s advised to do this through a title company and assure them they will get paid back by giving them a mortgage or deed of trust on your property.
It’s going to be hard, and you’ll feel embarrassed. A personal loan like this has a higher success rate even when you’re behind on your mortgage. If the amount isn’t too much, and the person lending to you knows you and your character, they’ll likely help you catch up on your payments.
Option 3 – Apply for a loan with financial institutions.
The other option is a personal loan with no mortgage attached to the property. You can go to any financial institution that does personal loans. They are usually based on your credit score and income history, which may be good news if you have not been hit too hard on your credit.
Another personal loan option in this category is using a loan with collateral, like a 401k loan. Not all retirement companies will allow it, but it’s an excellent idea to see if they can help. You can also seek financial institutions that will lend based on investments like CDs or stocks.
I recommend using something other than loan companies based on your car title, payday loan stores, or even a hard money loan, as those rates can be high. It could increase your payment and leave you in a worse situation.
Option 4 – Talk to your lender for loan modifications.
The following two options involve talking to your lender about your trouble making payments. Sometimes, if you get to them early enough and explain the situation, they can offer you a couple of options that will allow you to keep your house and get back on your feet financially.
There might be a few hoops, like talking to a housing counselor. You still have to pay them what you owe, but they can offer loan modification or even forbearance options.
A loan modification is exactly what it sounds like. Your lender will modify the original mortgage to make your monthly mortgage payments more affordable. You may be placed on a repayment plan while lowering the interest rate, extending the loan period, reducing the principal, or even using a short refinance. In a short refinance, the lender will typically refinance the amount the house is valued at, and the remaining debt gets added as a second loan. Remember that they may have fees, cost more in the long run, or even hurt your credit.
Most lenders may be more open to this option than you think. It helps you catch up on your payments on your mortgage loan, and lenders avoid the additional costs of continuing through the court system.
Option 5 – Ask your mortgage company about mortgage forbearance.
Sometimes a short term financial problem, like a medical emergency, may cause a missed mortgage payment. This would be a good time to talk about your option of forbearance. Forbearance is a process where the lender will allow you to pause your monthly payment for a specified period of time or reduce it for a set period of time.
Conversely, lenders generally require repayment immediately after forbearance ends. Some loan servicers may allow a repayment plan after forbearance, but both methods depend on the lender’s requirements and decision.
Option 6 – Catch Up All Missed Monthly Mortgage Payments With A New Loan
This one may be even more difficult than any of the other methods. This is an attempt to refinance your mortgage. This is best to do before your missed first payment. Still, most don’t think this is an option because they are worried about talking to the bank about it after they have a missed payment. One missed mortgage payment may not ruin your credit, but it will start to hurt it. Missing multiple mortgage payments may completely take you out of this option.
A new mortgage may also be your best option depending on the market and the interest rate when refinancing. Rates may be better than they were, and your home’s equity may have gone up. This means that even with a missed mortgage payment, you could end up with smaller monthly payments.
Option 7 – Turn it into a rental for assistance with your mortgage payments.
This may be the most complicated way to stop foreclosure, and you still move from the house. You’re probably asking how to do this if you still owe money. This is where some other options help because you’ll still need to catch up on the loan. Having the extra cash from rent may allow you to pay your monthly payments.
After you’ve caught it up, you’ll have extra income. The downside is that you must find a place to live while your old home becomes a rental or a hoarder house for sale. There may also be some additional work you’ll need to do to make it a rental.
You get out of foreclosure and keep your house, and you may end up in a better financial situation.
If you think this is too much work and want to get rid of your house now, fill out this short form below. This will be one of the options, but you can save time and close in as little as seven days, leave the house as is, and save money on closing costs.
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Options To Sell Your House And Stop A Foreclosure
Option 8 – List it with an agent for foreclosure help!
You have two options; a good listing agent will walk you through both ways to avoid foreclosure. You can decide what’s best for you. The first option that generally nets you the most is to rehab it, improve it, and list it to sell. However, if your property has undergone severe damage, such as fire damage, selling a fire damaged home might be more practical. Again, it will be market-specific, and your agent will know what to expect in your market. So talk to them and get their expert opinion when considering this one.
When listing with an agent, the other option is to list it as is on the MLS. This option will almost always net you less than rehabbing it, but it gets it done quicker. You still walk away with cash in your pocket.
Option 9 – Sell Your Property to a Cash Buyer Investor to Stop a Foreclosure
If you are facing an auction or have little time to decide what to do, these options will allow for the quickest way to avoid foreclosure. The first way is a cash sale. There will need to be equity in the house for this to be an option, and you will be trading some equity for the convenience and speed a cash purchase allows.
Each investor is different when it comes to deciding your offer. Some may even take advantage of your situation and offer an insultingly low cash offer. You don’t have to wonder what a cash buyer investor will pay for your house, though as it’s usually about the same formula.
Option 10 – Allow an investor to take over the payments.
The other option that some investors offer is creative financing. The easiest way to explain this is to tell you that they take over the payments on your loan and pay your remaining balance. This may be your best option if you don’t have any equity, and it may even help you build your credit back up.
This is not a standard option that gets exercised because it is not well-known and has many choices. Be sure they can answer all your questions when considering these options. I would even recommend talking to a few to see how they can solve your problem.
If this is the option you want to take regardless and want help avoiding foreclosure now, fill out the form below, and we’ll contact you as soon as possible to learn about your situation. We’ve helped numerous people get out of foreclosure and can help you.
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Option 11 – Use a deed in lieu of foreclosure with the bank.
In a deed in lieu of foreclosure, the bank takes your deed and terminates your mortgage. You make no more payments and don’t have to worry about foreclosure.
There are two concerns. The first is that banks aren’t known for wanting property. It’s different from how they make money, so they may want to do something other than this at the end of the day. The second is that you lose all home equity and miss out on any mortgage paydown.
Another critical consideration when facing foreclosure is addressing any outstanding financial obligations, such as selling property with delinquent taxes. Property tax delinquency can significantly impact your ability to maintain ownership of your home. Understanding the implications and exploring options for resolving delinquent tax issues in conjunction with your efforts to stop foreclosure is essential.
12th option – Do a short sale.
First, I must inform you that I am not a tax professional or CPA. Please talk to them to verify and see what the ramifications may be.
Now that’s out of the way. There are two things to note about this. You may have to claim the difference between what the property sells for and your loan amount as income.
You should also know that your lender can sue you for a deficiency judgment. Even though your lender approved the short sale, it will still want to ensure that it suffers the most negligible loss on the loan.
13th option – File bankruptcy to help stop foreclosure.
Again, I am not a CPA or an attorney, so seek proper guidance for this option. The only real advantage here is that it delays the foreclosure while you figure out other options while the default is complete. The whole point here is to stop a foreclosure and give yourself time to exercise any of these alternatives. Doing this will eventually hurt your credit, and you still lose your house. It is an option for you, though.
Frequently Asked Questions
What is an option to avoid foreclosure?
To avoid the financial hardship of foreclosure, explore options like negotiating with your lender, seeking a personal loan, or catching up on missed payments through a repayment plan. Contact your lender early, consider a lump sum payment, or consult with Housing and Urban Development for foreclosure help.
Can you refinance to avoid foreclosure?
Refinancing can be an option to avoid foreclosure. By refinancing, you may lower monthly payments, address financial hardships, and prevent missed payments. Speak to your lender, explore FHA loan options, and consider federal laws related to foreclosure prevention mortgage relief.
Can you use equity to stop foreclosure?
Yes, using equity is a viable option to stop foreclosure. Consider refinancing or taking a personal loan against your home’s equity to address missing mortgage payments and financial hardships. Engage with your lender, explore lump sum payments, and consult housing counselors for effective prevention.
Can you recover from a foreclosure?
Yes, recovery from foreclosure is possible with proactive steps. After a foreclosure sale, work towards financial stability, explore federal laws, and consider housing counselors for assistance. While recovering, ensure trouble paying a monthly payment doesn’t lead to multiple missed mortgage payments, and reach out to your lender for guidance in avoiding future foreclosure risks.
Facing foreclosure can be overwhelming, but there are several options to explore. Some may even wonder if the American Rescue Plan Act can help them catch up on their remaining balance. Since this was a short term solution to COVID, most states no longer have the funds to have continued their local programs. But you can catch up on missed payments, seek a personal loan, negotiate with your lender, or even turn your property into a rental especially when you are selling a difficult to sell house. Listing with an agent or selling to an investor are quick options, but consider the trade-offs and the need to negotiate Realtor fees. The last resort options, like deed in lieu, short sale, or bankruptcy, come with their own challenges.
So, when you’re facing foreclosures and working through all of these options, don’t hesitate to reach out to someone who can help you start to walk through those options. You can contact us here, and we can begin to help you, or you can give us a call at (708) 415-3801. The biggest thing you need to do is to start the process early. You can get that process started by filling out the short form below.