- How to Keep Your Home and Avoid Foreclosure
- The foreclosure process usually goes something this:
- It Shouldn’t Come as a Complete Surprise
- There Are Various Ways to Stop a Foreclosure
- Speak with an Independent Housing Counselor
- How Do Foreclosures Affect Property Values in Your Neighborhood?
- How can I stop my house from going into foreclosure?
- How can I avoid foreclosure on my home?
- Why you should refinance your mortgages ASAP
- 2 things to know before refinancing
- 1. Homeownership timeline
- 2. Closing costs and fees
How to Keep Your Home and Avoid Foreclosure
If you fail to make your mortgage payments each month, your bank or mortgage lender may take action to repossess your home.
After all, it’s not technically your home until you’ve paid the mortgage in full. Until that time, you AND the bank own the home. So if you don’t hold up your end of the bargain, the bank could come knocking. And the news won’t be good!
The legal proceeding is known as a “foreclosure,” and will result in the loss of your home, foreclosure fees, additional legal fees, and possibly a deficiency judgment if your outstanding liens exceed the current value of your home. Your credit will also be shot when all is said and done.
The foreclosure process usually goes something this:
- Become ill or lose your job (or mortgage adjusts significantly higher)
- Fall behind on monthly payments
- Once you’ve missed 3 mortgage payments lenders can file NOD
- And begin foreclosure proceedings
- At any point you can try to save your home in a number of ways
You lose your job, become ill, or simply fall behind on your mortgage payments after your adjustable-rate mortgage resets. Unfortunately, these aren’t typically valid reasons to miss your mortgage payment(s).
When you originally applied for your mortgage, you probably verified asset reserves to prove to the bank that you could afford to pay the loan for a certain period of time, even if you failed to receive additional income for some period of time.
Once you miss your first payment, the bank or lender will hit you with a 30-day late. At this point your credit will take a huge hit (how long does a foreclosure stay on your credit), and a representative from the bank or lender may call you, or send you a notice in the mail regarding your failure to pay on time.
It Shouldn’t Come as a Complete Surprise
- Along the way you’ll be notified of late payments
- And potentially offered a forbearance plan
- Which allows you to get your account back in good standing
- If you ignore the warnings you could eventually lose your home
The bank or your loan servicer may also discuss a forbearance plan with you to resolve the missed payment and get you back on track.
This is basically a special payment plan the bank/servicer sets up with the borrower to either lower payments or suspend payments so you can continue paying your mortgage.
Alternatively, there’s the possibility you could take advantage of a special refinancing or loan modification program to make your payments more affordable going forward. But you will still need to prove to them that you’ll be able to handle the new financing terms.
If you fail to speak with your lender/servicer, and continue to miss mortgage payments, you will be hit with a 60-day late, followed by a 90-day late. That will impact your credit pretty significantly, and any chances of refinancing or seeking a forbearance plan may be lost.
Once you hit the 90-day late mark, the bank or lender will send a Notice of Default. The NOD essentially states that you have 30 days to make the payment current, appear in court, or face the risk of a foreclosure.
If 30 days go by and you fail to appear in court or make your payments current, the court can schedule an auction to sell your home within 7 days.
If the auction ends without a buyer, the bank or lender will gain ownership and ly perform maintenance on the property, clear up any title issues, then put it on the market.
After paying legal fees, foreclosure fees, late fees, and losing your home, you’ll be hit with a huge ding on your credit report.
A foreclosure will drop your credit score dramatically and prevent you from borrowing from A-paper banks for many years to come.
There Are Various Ways to Stop a Foreclosure
- The are plenty of ways to stop foreclosure
- But you have to be proactive and resourceful
- If your lender or loan servicer won’t help you
- Consider speaking with a HUD approved housing counselor
- Or contact state housing finance agency
The scenario above is just one way late mortgage payments can end in foreclosure. Luckily, there are a number of ways you can stop foreclosure, though not all of them will allow you to keep your home. They include:
– Forbearance Plan – Partial Claim – Pre-Foreclosure Sale (also known as a short sale)
– Deed in Lieu of Foreclosure
– Loan Modification
– Short Refinance
– Short Sale
As I mentioned above, a refinance may lower your payments and get you back on track. But you will need to qualify and exhibit the ability to make the payments. Some borrowers were able to take advantage of the Home Affordable Refinance Program (HARP) despite having underwater mortgages, but it required borrowers to be current on their home loans.
Your bank may also be able to save you from foreclosure by putting you on an interest-only home loan or a shorter-term ARM to lower the monthly mortgage costs. Ironically, these will reset in the future and could land you back in a tough spot. However, it would buy you some time to get back on your feet.
A forbearance plan is a payment plan set up by your lender/servicer to ease or even suspend payments until you are current again. It can be helpful if you’re simply experiencing a temporary hardship.
A partial claim allows the mortgagee to advance funds to the mortgagor (the borrower) in the form of a promissory note.
So long as you are not delinquent over 12 months, HUD may grant you a partial claim (for FHA loans), which will bring your mortgage payments current.
It is essentially a second mortgage behind your existing lien that collects no interest, and is not due until you pay off your first mortgage or sell your home.
A pre-foreclosure sale, such as a short sale, will help you avoid a foreclosure, but unfortunately at the cost of selling your home, ly for much less than it’s worth. It will also ding your credit in the process. But it could lessen the blow, and help you avoid any deficiency judgments after the fact.
Another option is a deed in lieu of foreclosure, which allows you to sell your home back to the bank that financed your mortgage. It is a great way to avoid foreclosure proceedings, but again results in the loss of your home.
It must be voluntary, and both parties must act in good faith. The bank/lender must buy the property for at least fair market value, but will usually not proceed if that value exceeds the existing liens.
There’s also the possibility of getting a loan modification, such as one through the Home Affordable Modification Program (HAMP) offered by the government. But if you don’t qualify for that, your individual loan servicer may have a proprietary loan mod program as well.
Ultimately, you really have to hustle and exhaust all options if you’re serious about saving your home and avoiding foreclosure. No one said it was easy, nor is there a one-size-fits-all solution. So expect a long and hard journey.
Speak with an Independent Housing Counselor
- A legitimate housing counselor
- Such as a HUD approved or state housing finance agency employee
- Can provide assistance to help you prevent an avoidable foreclosure
- They should never ask you to pay any fees for their services
You can also contact a local HUD approved counselor for help in foreclosure matters. Click the following link for a list of HUD Approved Housing Counseling Agencies.
Or look into non-profit programs and services offered by your state housing finance agency. For example, in my home state of California there is an organization called “Keep Your Home California,” which is a federally-funded free service for struggling homeowners who need help staying in their homes.
They work with a large number of loan servicers to achieve affordable mortgage payments and help homeowners avoid foreclosure. There are similar agencies in every state throughout the nation, so be sure to consider that route as well.
Just make sure they are the official housing agencies backed by the state or the United States Department of the Treasury. These government-backed agencies will never request that you pay fees for assistance, which is a good indication you’re working with the right type of organization.
One final thing to note is that despite all the available, regulated, and honest means available for saving your home from foreclosure, many foreclosure scams are also prevalent.
These scam artists will do their best to contact you during pre-foreclosure to rip you off using a variety of tactics including bait and switch schemes, equity skimming, fake bailouts, and overpriced help that leads nowhere. So always do your due diligence when seeking foreclosure help to avoid making matters even worse.
How Do Foreclosures Affect Property Values in Your Neighborhood?
- They say for each foreclosure that occurs
- Nearby property values will drop about 1.5%
- If multiple foreclosures take place in a small area
- The impact can be even greater
Many real estate professionals note that for every foreclosure that occurs within a neighborhood, the value of the homes around it drop by about 1.5%.
While typically not very significant as foreclosures occur somewhat infrequently, if multiple foreclosures occur within one neighborhood in a short period of time, a crippling value drop can take place.
Imagine the areas suffering the most from the recent housing bust, such as the inland Central Valley of California or Las Vegas, Nevada.
The problem with these areas and many them is that they were built up too quickly, creating huge inventories and a housing supply that simply couldn’t be met.
To accommodate the builders, banks and mortgage lenders nationwide created aggressive mortgage programs to get new homeowners into these new developments, often pitching 1% option-arms and other high-risk loans.
But once the housing boom had gone bust and most of these loans had lost their initial low mortgage payments, many of these unwitting homeowners were forced to sell or face foreclosure.
And because multiple foreclosures took place in these areas, a large drop in home prices exacerbated an already bad situation.
This is yet another reason why location is so important in real estate – many metropolitan areas in the United States such as Los Angeles and New York City are saturated, and new development is rare because it’s cumbersome and riddled with bureaucratic red tape.
Such areas will ly retain much of their value through a crisis as there will always be buyers, and limited inventory means it won’t be able to get too control.
Read more: How long after foreclosure can I purchase a home?
How can I stop my house from going into foreclosure?
COVID-19 has not only been a wrecking ball on public health, but it’s also threatened the homeownership dreams of millions of Americans in 2020, with more havoc on the way in 2021.
According to the U.S. Census Bureau, approximately 5.8 million U.S. adults say they were on the way to either a home foreclosure or eviction by the end of 2020 due to the pandemic and subsequent economic slide across the U.S. Altogether, 17.8 million Americans report they are falling behind on either their rent or home mortgage payments, the Census Bureau reported.
“Although the unemployment rate has reduced significantly since its peak of 14.7% back in April, according to the Bureau of Labor Statistics (BLS) it’s still near double that of February before the pandemic at 6.9% as opposed to 3.
5%,” said John Davis founder of ScoreSense, a Dallas, Texas-based credit score services company. “Some have taken a much lower salary than they have in the past and many have depleted their emergency fund and savings.
Because of this, the fear of foreclosure is very real and widespread across the states.”
If stopping foreclosure or any other legal action is your end goal, then you may want to consider taking a closer look at your current mortgage.
How can I avoid foreclosure on my home?
For U.S. homeowners who believe a foreclosure scenario is looming over their property, one path to saving your home could be a home mortgage refinancing deal. Paying your mortgage is hard, but a refinance could make your home affordable.
“With mortgage rates at an all-time low, refinancing is a wise choice for those struggling to meet their monthly payments,” Davis said. “Refinancing for the balance of the mortgage with lower interest will reduce payments. Plus, if the mortgage load is still unmanageable, then the term of the refinanced loan can be extended to reduce them further.”
Explore all your mortgage refinance options by visiting Credible to compare mortgage rates and lenders.
WHEN SHOULD YOU REFINANCE YOUR MORTGAGE?
The immediate problem with a personal financial decline and the need to refinance into a lower home mortgage payment is people usually need good credit to secure a decent mortgage refinancing deal.
Why you should refinance your mortgages ASAP
The sooner a financially struggling homeowner gets going on a refinancing deal, the better.
“The time to work on a home refinancing loan with a foreclosure on the horizon is immediate,” said Bruce Ailion, a realtor with RE/MAX Greater Atlanta.
“Waiting for your credit to deteriorate, or a layoff becomes permanent, or worse a bankruptcy filing is the question.
Plus, seeking out a lender that lends to credit damaged people will result in a high-interest rate. If anything, this will drain needed resources.”
The good news is that mortgage lenders and homeowners are all in the same boat when it comes to the pandemic and all are trying to weather the storm together. Plug your information directly into Credible's free online tool now to compare mortgage rates and view your loan options.
HOW TO REFINANCE YOUR MORTGAGE WITHOUT CLOSING COSTS
“Speak to your lender as soon as possible and let them know you are struggling and do not want to default on your loan,” Davis said. “Discuss with them the possibility of refinancing to a manageable monthly repayment amount and be open to other options. Always remember it is in the best interest of the lender to find a solution together with you than to go down the foreclosure path.”
Financial experts also advise taking these steps when refinancing to help avoid household financial struggles.
Be honest with the broker or bank. Don’t avoid facts — especially negative ones — related to a loan refinancing application. “Even acknowledging a layoff is information a lender needs to know about,” said Benjamin Schandelson, a mortgage loan originator at MJS Financial LLC in Boca Raton, Fla.
Visit Credible to talk with experienced loan officers and get all your mortgage refinancing questions ( how this will impact your monthly payments and loan long term) answered.
2 things to know before refinancing
Before you dive head-first into a mortgage refinance, make sure you do some research. There are at least two factors you should consider before you refinance your mortgages.
- Homeownership timeline
- Closing costs and fees
1. Homeownership timeline
The amount of time you expect to live in your current home is a big factor when refinancing a home loan.
“A general rule of thumb, assuming you plan to be in the home for at least three years,” said Bill Packer, chief operating officer at American Financial Resources, in Parsippany, N.J. “If you can earn back your costs in 12-18 months, it may make sense for you to refinance.”
If you see yourself in your home for that period of time (or longer), then a refinance may be the right move for you. Get started on your mortgage refinance today!
2. Closing costs and fees
Don’t jump at the chance of a mortgage loan refinancing deal until you know how the numbers will work out. “Refinancing a mortgage is a factor of three key items,” Packer said.
Here’s how Packer breaks those three items down.
- The after-tax monthly savings (the new mortgage payment compared to the old payment after allowing for any tax-favored treatment.)
- The amount of time that you intend to be in the home.
- The cost to obtain the new mortgage (especially closing costs.)
“Once you understand these three factors, you can then calculate your return and see where you stand financially,” Packer said.
Use a refinance calculator to help figure out how a new home loan will impact your personal financial situation. Credible can also help you determine if now is the right time to refinance your mortgage.
4 MORTGAGE REFINANCING MISTAKES THAT CAN COST YOU MONEY