One of the biggest monthly payments most people have is their house payment. This means that it can easily become a payment that many fall behind on if they are experiencing financial difficulty; this can mean facing foreclosure. So! What exactly is foreclosure? What are your options to deal with foreclosure? Below, we will outline common options for someone facing foreclosure.
What Does Foreclosure Mean?
Foreclosure is defined as the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments. There are several options when it comes to dealing with foreclosure, and we will now discuss some of the most common options individuals take when facing this problem
Forbearance is when the bank or whoever your mortgage is through allows for lower payments or a pause on payments for a certain amount of time. This option allows for leniency and a way to catch up on payments without facing foreclosure and is ideal if you are only facing temporary financial challenges. Forbearance is usually an option offered when you are on good terms with your financial institution. It also is used in drastic situations like hurricanes or other natural disasters and/or job loss. The way to go about asking for a forbearance option is contacting your financial institution and coming to an agreement. Only your lender can provide you with this option. You do have to repay any missed or reduced payments in the future. A forbearance doesn’t eliminate your obligation to pay your mortgage, it just postpones the payments.
A loan modification is a change to the original terms of your mortgage loan, and it directly changes your loan terms. This process is very complex, can take a long period of time, and requires a lot of paperwork, so it is not the easiest option. Though, it may be a good idea for those who did fall behind on their mortgage and can’t catch up, but now you can afford to pay reduced payments regularly. A loan modification is permanent, unlike a forbearance.
A refinance is when you get a entirely new loan for your house. When you refinance, you have to pay off the original loan with the new loan. This process can allow for lower interest rates, change the length of the loan, or you can cash-out to make use of your home’s equity. Refinancing is only possible if you have equity in your home, or you do not owe more than the house is currently worth. This process is very similar to how you applied for the original loan, but can be much quicker. Keep in mind there are fees involved with refinancing. It typically costs several thousand dollars to refinance your mortgage.
Filing for bankruptcy is when you legally declare that you cannot afford to pay your debts. Chapter 7 and Chapter 13 bankruptcy are the two types of it that are applicable to homeowners. Chapter 7 a is liquidation of your assets, which would mean selling your house; however, chapter 13 is the process of creating a 3-5 year payment plan to help pay off your debts. Chapter 13 is how you would keep your home that is facing foreclosure. This process requires filing a petition with bankruptcy court. Chapter 13 bankruptcy can be a long and tedious process, and one should definitely consult a legal professional if they are considering this option.
Short Sale and Regular Sale
Short Sale is when you sell your property for less than what you owe on it. To do this, you must get approval from your lender. Selling a house as a short sale is a much longer and more complicated process than regularly selling a house, so having a professional who knows what they are doing is a major help. This is common when the housing market is not doing too well, so banks are likely to agree to a short sale since they know there is no other way to make the actual amount of money owed on the loan.
If there is equity in the home, it may be a great idea to simply sell the home. A home is substantial emotional attachment and it is difficult to walk away from a home in most cases, but the stress relief selling can provide will more than make up for this. Consider selling with an agent or selling to a professional home buyer. If time is not on your side, selling to a professional home buyer will be your best option. You can get a fair amount for the home (although not market value), and you will be able to close on it quickly (usually 10-15 day). Make sure to do your due diligence if you elect to use a professional home buyer by vetting the company. Selling with an agent may take several months, and this is NOT what you need when you are facing foreclosure.
Defend in Court
The final option we will discuss is your option to fight the foreclosure in court. This is usually only a good option when you truly think there is an error that caused the foreclosure on your property. There are 5 main reasons that are used to fight off foreclosure in court. They are 1. improper service of notice, 2. improper loan closing, 3. Breach of contract, 4. Lack of standing/ defective chain of title, and 5. Fraud and misrepresentation. This can be a lengthy process with the court system, and it is usually a long shot because banks tend to have protections against such issues. That stack of paperwork you signed at closing more than likely has clauses that protect your lender in most situations!
Final Thoughts On Foreclosure
When you are facing foreclosure, your stress level could not be higher. The thought of losing your home is emotionally taxing. Thankfully, you do have multiple options if you are in this situation. It’s best to set down and write out the pros and cons of each option. Only you can determine the best path to take, but always consult your lender, people you can trust, and professionals that have experience with helping people get out of foreclosure.
*These articles are not a substitute for legal advice. All real estate transactions should be reviewed by an attorney that in knowledgeable about the laws and rules of your state.