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When we save and scrape for years to finally attain our homes, the last thing on our minds is the potential of foreclosure. But unforeseen circumstances and crises, like a sudden emergency or a job loss, can put many homeowners at risk. This is particularly true if the home you purchased came with large mortgage payments that stretch your budget to its breaking point each month.
If you’re facing a foreclosure, you should address it right away. Ignoring the problem won’t make it any better. And by taking the proper steps, you may be able to avoid foreclosure altogether. It’s important to keep in mind that specific rules will vary depending on the state and jurisdiction. But here are some things to consider when you are hoping to avoid foreclosure:
It’s hard to answer the question, “how can I avoid foreclosure?” without first answering the question, “what does foreclosure mean?” Let’s take a step back and first get to the bottom of what this financial term truly means since there is often a bit of confusion surrounding it. Foreclosure definition: the legal process that involves a lender attempting to recover the amount owed on a defaulted loan by retaining ownership and selling the property. Essentially, if you miss too many mortgage payments, your lender will be able to start foreclosure proceedings to sell your home and obtain the balance owed that way instead. And this means you need to find a new place to live.
To go back even further, and lend some hope to this stressful situation, let’s answer another common question: what does pre-foreclosure mean? Pre-foreclosure is the beginning phase of this legal process. During this stage, your lender will file a notice of default that informs you that they are pursuing legal action toward foreclosure on your home. This notice often comes after you’ve missed three consecutive mortgage payments.
After the first missed payment, you’ll likely receive a missed payment notice. After the second, a demand letter. A notice of default is typically sent out after 90 days of missed payments. But because this is still early in the foreclosure process, your lender may present some options for you to settle the dispute at this stage. You may be able to make backdated mortgage payments, negotiate a modification, or arrange a short sale to cover what is owed. If it moves beyond the pre-foreclosure stage, you may still be able to avoid foreclosure.
If you’re facing foreclosure due to coronavirus-related financial hardship and your mortgage is backed by the federal government (FHA loans are the perfect example of this), you may be able to suspend your mortgage payments. Some homeowners have been able to suspend their payments for up to 12 months without incurring late fees or other charges.
If you started missing payments before the pandemic outbreak, you will likely still have to pay back your overdue mortgage payments. While your payments are suspended, put aside as much money as you can to eliminate the back payments you’ve accumulated. If you can make a payment that covers what you owe before the date provided by your lender, they will reinstate your mortgage. Apply for in-demand jobs, cut costs elsewhere, and update your budget to make the most of this extra time.
If you’re not eligible for suspended payments, ask your lender about the possibility of a short refinance. Some lenders will agree to forgive part of a debt and refinance the rest of it into a new loan. There are many factors to consider here. Each lender has different rules. Your relationship with your lender, financial circumstances, amount owed, and other individual factors may all be taken into consideration.
Your lender may agree to a monthly mortgage payment that is within your current means, but they may also require proof or reassurance that your financial struggles are temporary and will be resolved. If your lender refuses, consider contacting a private lender to see if a hard money loan is an option. If you are approved for a refinance or a loan, plan and budget accordingly to avoid common money management mistakes in the future. We can’t control when an emergency comes, but we can control how prepared we are to face them.
If COVID wasn’t the short-term financial disaster that derailed you, you may still be able to suspend or lower your payments. Medical emergencies and sudden, unexpected losses of income are two common reasons that forbearances are granted. You may be approved for a mortgage repayment plan that temporarily decreases your payment amounts or fully suspends them temporarily.
The method, amount, and duration of this debt relief method will be determined by your lender. For more information regarding the remedies you may be eligible for, contact your lender. If your lender has denied your requests or you’re ready for more state-specific information, you may wish to contact a foreclosure attorney.