Foreclosure happens after you start losing control over your monthly mortgage payments. If you failed to pay three consecutive monthly payments, your lender would file a notice of default (NOD) against you. In such a case, your property may go under foreclosure. There are some options though to avoid this like selling your home.
Foreclosure is a legal procedure where a lender can sell the property to recover the debt amount along with the incurred interest. If the property worth less than the total debt + interest amount, then a deficiency judgment could be pursued. If a deficiency judgment happens, the borrower not only loses his/her home but also would owe the lender the remaining amount. The Foreclosures can badly damage your credit history, and you wouldn’t be able to borrow any financial loan for a long time.
A property owner who are at the verge of foreclosure would do anything to stop it. Dealing with those facts can be dreadful. No homeowner would have thought of losing the home when they first bought it. But, in some cases, the homeowner plans to go into foreclosure.
Even at this stage, when your property is listed for foreclosure, there are six possible ways to stop the foreclosure process. Let’s learn about each one of them.
6 Ways to Stop Foreclosure
Here’re the six ways with the help of which you can stop foreclosure at the last moment.
Spend Wisely and Keep Savings
Although this step should be taken away before the moment, you realize it’s too late to save your house. Your mortgage payments should be the first thing you take out from your income. Always spend only 60% of your income on necessities. If your expenses are more than 60% of your income, try cutting them out. Only buy necessary things. You need to realize the situation before the disaster hits you badly. If you start missing out on monthly payments, talk to your lender to figure out ways to pay.
Ask for more time or rescheduling of your payment plan. If you need to pay extra on the few upcoming monthly payments, do it. Save on luxuries and unnecessary stuff. Small savings can take you out of this situation. Imagine if you smoke a pack of cigarette every day, which cost you a minimum of $20, you could save $600 a month. If you take a cab from work to home, which cost you $50, instead take a train or bus and save $40 every day. These small savings can put you on track in no time.
Sell the House Before Foreclosure
There are certain situations where you will know in advance that you will not be able to pay on monthly mortgage payments. In case you have lost your job, or a member of your family got hospitalized so you need to cut on some expenses to pay the hospital bills or you got another loan. In scenarios like that, when you already know that in the future it will be near impossible to pay your monthly payments, it better to sell the property. This way, you will bargain more time for you to move out to an affordable place as well as you can save the remaining amount after paying the debt. In most cases, the lender and borrower make it work together to avoid excessive amounts of documentation for foreclosure.
Ask Help from Government
The time for foreclosure varies from state to state. In some states, the homeowner has the time of up to 6 months to vacant the house. In some states, the homeowner gave just a month to move out of the house. The Federal Government’s Housing of Urban Development department offers various programs that may be helpful in your situation. These programs are mostly based on the home’s value versus how much is left on loan. The same department can also help you understand your financial situation and suggest options that can work for you.
Rent the Property
If, for some reason, you are getting short on your monthly mortgage payments, you should rent out the property. There are two ways to do it.
Number # 1: If you are living alone and you have a spare room or space in the house, consider having a roommate. The rent amount will be an additional source of income for you, which can help you pay your installments.
Number # 2: If you have another place to stay, they move out of the property until you find out another way. Or, rent a place on cheaper rent to save on mortgage amount. Use the income coming from renting the property to pay the rent of your next place.
Reinstatement of the Loan
After the lender sends you to notice for foreclosure, you have a certain time to sort out the problem or find a new place for yourself. If you gather enough amount that you can pay the missing payments, the problem will be solved. If you cannot pay the entire amount in one go, then you can consider reinstatement. All you have to do is to make the bank believe that the cause of missing the payment has been resolved and you won’t miss any payments in the future. Sometimes the homeowner has the redemption period.
If you avail of the option of reinstatement of the loan, you will need to pay all missed payments, late fees, and legal fees that are due up to the date that the loan is refinanced in order to reinstate the mortgage. You will request this amount from the mortgage company to pay to the bank by sending a reinstatement letter. The letter expires in 30 days as the due amount is time-sensitive. A reinstatement process will require an onetime payment of all delinquent funds in full. After the mortgage is reinstated, the owner will pay the installments as they had paid before.
Let us illustrate the example of the reinstatement of a loan.
Imagine a house owner missed three installments $1500/month, and the foreclosure noticed has been issued.
The reinstated amount in such case will be:
3 months payment of $1500 each = $4500
Late fees = $300
Legal fees = $1200
Processing charges = $250
Total amount to be paid in full = $6250
Once you paid the amount to the bank, your mortgage will be reinstated.
Take New Loan on your House
If the homeowner has enough equity and their credit history is excellent, then they can apply for refinancing the loan. This will only work if the remaining amount on the first mortgage is small. If you haven’t paid even 10% of the previous debt, then this process might be a disaster for you as the amount of your payment can be increased due to refinancing. But if you have paid 80% of your previous mortgage and you only need to pay the remaining 20%, which will make the refinancing amount very small. This way, the installment amount will be less than the previous mortgage. You will get the time from the start, and your previous mortgage will be paid off.
From the day the lender files the notice against you, the options are very limited. So, instead of waiting for the last moment, it is better to call your lender and work out your options. Once the foreclosure proceedings are commenced, it will be very difficult for you to talk to the lender as they become reluctant to offer you options.
If you took a mortgage on your property, better always keep one payment extra in your bank account. Be wise in your spending and day-to-day expenses to avoid any such scenarios. Foreclosure can make you homeless. So, if you cannot make payments, its better you already plan out the options that we have aforementioned.
Keep your finance in control because there’s no worst thing than losing a home. If you’re a real estate agent working with a client facing foreclosure, help them out by getting an instant offer on their home today!