The foreclosure process isn't something any homeowner wants to go through. It’s upsetting and can add more problems on top of the issues causing you to default on your mortgage. According to the Mortgage Bankers Association, about 250,000 families face this problem every few months. The process is started by the lender when you default on your monthly mortgage payment.
Your lender won't always try to take away your home, though. If you are able to come up with the money owed or come to a specific agreement with your lender, this can resolve the problem. By communicating with your lender, understanding your rights, and talking to a real estate attorney, you can better understand the process. Before you can look at potential solutions, however, you first need to understand the foreclosure process.
What Is A Foreclosure?
A foreclosure is a legal process that allows a lender to take back ownership of a property from the current homeowner. This typically occurs when the person who borrowed money to purchase the property can no longer make the monthly mortgage payment or are consistently late with their payments. While foreclosure often results in the lender taking ownership of the property or selling it, there are options to avoid losing the home or lessening the damage done to your credit. For example, you can have a short sale or ask for a mortgage release.
If the property is repossessed, the lender can sell the home through a real estate agent or public auction to recoup the money lost. If a public auction is held and there are no bids, the lender becomes the new owner.
Understanding Your Options
It’s important to understand all of your options legally when you get a foreclosure notice. Talking to your lender immediately is necessary to avoid foreclosure or avoid a heavy hit on your credit. If foreclosure is unavoidable, make sure you are following the procedures correctly to eliminate additional problems.
If you do end up dealing with foreclosure, you're likely to go through the following steps:
1. Default On Mortgage
The first step in the process is when you default on making mortgage payments to your lender. The current owner must default, and this doesn’t usually happen right away. It may take several late mortgage payments or no payment for the bank to start the process.
Typically, a bank will give the homeowner time to catch up on payments because they understand the reality people face. Hardship can happen to anyone, and there is usually a grace period for the borrower. The bank is likely to send you many emails, phone calls, and letters letting you know you owe money.
Banks or lenders also typically offer different payment options to the current homeowner to get back on track and stay in their home. It is in the best interest of both parties that payments are made. The bank wants their money, and the homeowner wants to remain in their home. The bank isn’t interested in kicking people out of their homes; they are in the business of lending money to make money.
Usually, a lender cannot file a notice of default until a month after contacting the homeowner to discuss the present financial situation. This gives the owner time to figure out a plan. Sometimes selling the home before getting a notice is an option. If you are able to do this, you can pay off what is owed and find a smaller or cheaper home. This is great for homeowners who already have a lot of equity in the home and may be your best option. If it's not, seek guidance from a financial advisor, HUD, or an REO realtor in your area.
Reasons for Default
There are a number of reasons why someone might default on their mortgage:
2. Notice of Default
When the homeowner or borrower cannot come up with the money, the bank or lender will send a notice of default in the mail. The letter usually comes as a certified letter and gives the homeowner 90 days to pay the most recent payment. This is the first formal attempt in the process of foreclosure. Once received, the homeowner should make plans to pay off the debt so the process doesn’t proceed. If you are able to catch up on payments, you can have your mortgage reinstated.
3. A Notice Of Sale
After the certified letter comes and you cannot come up with the funds to get current on your mortgage, the default process continues. The third step is known as a notice of sale. You will be notified that the home will be sold by the lender at a home auction within 21 days. This will come as another certified letter in the mail.
The notice of sale will also be published in a weekly newspaper for three weeks. This helps allow potential buyers to learn of the sale. Even though this process is going on, the owner has the option to still pay back what is owed and can reinstate their mortgage. They have until five days before the home goes to auction to do so. This is why the process takes time. Don't panic if you receive a notice of sale. You're not being kicked out of your home just yet.
4. Property Is Auctioned
During the auction part of the process, the home is sold to the highest bidder. The new buyer must pay the full amount immediately. This new buyer will get the lender’s deed after the completed sale of the property. They then become the new official property owner. Once this is finalized, the new owner has to serve the old owner or occupant of the property a quit or move out notice. Sometimes this doesn’t work, and the new owner must to go through the eviction process with the courts to get the individual or family out of the home.
What Happens If The Home Doesn’t Sell At Auction?
If your home doesn’t sell at auction, the property becomes a real-estate owned property. This is also referred to as an REO property. However, just because it doesn’t sell doesn’t mean you and your family can remain living in the home. When the bank owns the foreclosure, they have every right to evict you from the property. Sometimes they will offer the previous owner relocation assistance. Even if they don't, the current resident or previous owner can ask for assistance in relocating.
Making The Process Easier
If you defaulted on your mortgage and get a foreclosure notice in the mail, be sure to have all your financial information gathered. Have your basic loan and financial information on hand when you call your mortgage company. This includes your mortgage statements and information about any other debt such as student loans, car loans, and credit card debt as well as all income and tax information.
You should be ready to explain the current situation you’re in, the hardship, and why you are having trouble making your mortgage payments. Be honest and upfront with the lender so you can work towards finding a solution. You may also want to find out if you’re eligible for a mortgage release or short sale.
Remedy The Situation
Once you've talked to your lender, it's time to look at solving your financial problems. If possible, you should look for ways to make enough extra money to catch up on your mortgage. There are some options here. You could pick up a second job or, if you're married and only one of you works, the other person could get a short-term job.
If you have children, having an additional job can be taxing. However, getting a part-time job from home can help relive debt issues. Getting another job might be too much depending on your circumstances, but with a job that allows you to work remotely, you may be able to earn additional money and make up your payments. These kind of jobs are prolific today. Any hobbies you might have could also make you money on the side that would be less taxing.
Another option to consider is a consolidation loan. These loans can merge some of your other debt, including credit card debt, into one single loan. Often, these loans have a lower interest rate than some or all of the combined debt. That means your consolidation loan payment is likely to be less than the total monthly payments you were making to the individual lenders.
There are a variety of life issues that cause a homeowner to face foreclosure, but there are options out there. Work with your lender and be open to the various solutions they present.
A foreclosure can be detrimental to you and your family. It can ruin your credit and impact the way you live for several years. Acting early can minimize the damage, though. When this process occurs, it's vital that you understand that you do have options. By learning about the process and understanding what your rights are, you'll be able to make informed decisions regarding your mortgage.
Regardless of your circumstances, you want to act as soon as possible and find a plan that works for you.