Anyone faced with financial troubles and belated debt repayment knows that they may result into something more than having no cash for quite a long time. One of the possible adverse outcomes of a bad financial decision may be losing your home to a mortgage foreclosure. If you are concerned that this may happen to you too then keep reading to find what exactly house foreclosure is and how you can avoid it.
What is a mortgage foreclosure?
The foreclosure is the result of the failure to pay the instalments on your mortgage. In some cases the homeowner, or perhaps the more correct term here is the borrower, since you do not fully own the property until the mortgage is repaid, starts delaying or omitting payments. This is usually due to a hardship – accumulated medical bills, sudden unemployment, divorce, etc. During the first two-three weeks of a delayed mortgage payment you are usually approached by a representative of the lending institution with a reminder that you have an outstanding debt and perhaps a proposal of how to pay it. If you still keep omitting payments than the actual foreclosure procedure starts. It is different in the different states but more or less follows the same pattern.
- You are being warned about the delay – as we already mentioned after 2-3 weeks you are being contacted by the lender and reminded of the payment. It is possible that the lender offers renegotiating the terms of your mortgage.
- You receive a public notice – if you miss payments for more than 3 months (up to 6 in some states) then the lender records a public notice with the County Recorder’s Office that you have defaulted on the mortgage. In some states this is referred to as a Notice of Default (NOD) and the lender might be required to attach it to the front door of the property it concerns.
- Pre-foreclosure stage – after receiving the official notice, you are given a grace period of 30 to 120 days, the so called pre-foreclosure, when you can arrange a short sale or pay the outstanding amount to the lender.
- Auction – if you are not able to settle the mortgage debt during the pre-foreclosure then the lender sets a date for a foreclosure auction where your property should be sold to the highest bidder for cash. The auction can be held almost anywhere including in the foreclosed property itself.
- Post-foreclosure stage – if the property is not sold at the auction then the lender gains ownership of it. Such properties are known as bank-owned or real estate owned properties.
The final result of the foreclosure is that you lose your home and in some cases you still may own money to the bank or tax to the state so it is mandatory to hire a knowledgeable local foreclosure attorney who will help you walk out of this procedure in the most painless way.
How to avoid a mortgage foreclosure?
The simple answer to the above question is by paying your mortgage instalments on time. This however might not be so simple due to some of the problems we have already mentioned. However, it is still not impossible to avoid a foreclosure on your home. Here are some of the options:
- Renegotiate your payment plan with the lender – the lending institution is also not so keen to deal with foreclosures so they may be willing to renegotiate the terms and conditions on your mortgage. Ideally you shall contact them when you see that you have some financial troubles paying and prior to missing any instalment.
- Sell your home – you can try to sell your property yourself and not wait for a foreclosure auction. This might be a way to avoid foreclosure, however the result is that you end up losing your home anyway.
- Get government help – in the US you might get support from the government to pay your mortgage under the Home Affordable Refinance Program. It is for homeowners who are on time with their payments but expect having financial troubles. Under HARP you may be able to refinance your mortgage at better and lower rate. For more information you should check the official site of the program.
- Find alternative financing – if your lender is not willing to renegotiate the terms and you can’t get a second mortgage from another lending institution, then you shall look for alternative finance resources. You might ask a relative for help or turn to peer to peer financing site. You might also be able to get a loan by “hard money” lenders – these are private lenders who are willing to give money to people with financial troubles but at quite high interest rates, so you shall consider whether this option will actually work for you.
- File for bankruptcy – you can file for Chapter 13 bankruptcy in order to avoid foreclosure. The procedure will damage your credit score, but a foreclosure will do the same, however it will allow you 3 to 5 years to catch up on your payment with a renegotiated plan. This is an option if you want to keep your home and if you believe that your financial plans are temporary and will be resolved after the bankruptcy.
In a nutshell it can be said that avoiding a foreclosure is quite possible if the right steps are taken on time. However, if you are faced with losing your home it is always a good thing to consult a foreclosure attorney who will be able to help you the right decision.