When we borrow to buy a home, we never imagine that there might come a time when we will be unable to make the mortgage payments. It is unimaginable to think that some people will come and demand we leave the place we call home.
Unfortunately, this is perfectly possible. If you fail to pay your lender the mortgage money you owe every month, they have the right to come to your doorstep and ask you to leave. This can be an excruciating and distressing process, but unfortunately, the house and borrower become a liability for lenders, and they have to make some harsh decisions like foreclosure.
Foreclosure is a legal process that starts when borrowers miss a number of their monthly payments. During the foreclosure process, the lender takes the ownership of the property from the buyer to recover the defaulted dues by selling it.
Foreclosure is a part of the deed of trust contract that you sign when agreeing to your loan. It states that the lender has the right to take over the property’s collateral and sell it for recovery of the money that they are losing. The lender also has the right to take these steps when the borrower has broken any mortgage terms.
The foreclosure process varies according to the state. However, it generally starts when the borrower fails to pay at least one of their mortgage payments. According to RESPA, the lender must send them a notice stating that they have missed a payment for the month.
If the borrower hasn’t reached out and misses another payment, the lender sends them a demand letter. During this time, leverage can be given to the borrower to make late payments and get back on track.
If there is no further contact in the next 90 days, a notice of default is sent to the borrower. The loan case is then sent over to the foreclosure department, and the borrower gets additional 90 days to make the payment. This period is also called the reinstatement period.
You will notice that the borrower is given many opportunities to get their payments back on track. You are not dragged out of your house on the first missed payment. In fact, several notices are sent your way, and time is provided to get in touch.
How Can I Avoid Foreclosure?
It is possible to avoid foreclosure altogether and never have it enter your records. The borrower can make the complete pending payment during the reinstatement period, including penalties. Doing so will mean that the foreclosure department will not be going further with the legal process.
In some cases, lenders give enough leverage for borrowers to get a short refinance, which is a term used for times when the lender offers to forgive the pending payment amount by issuing a new refinance on the remaining debt, which is lesser than the original default amount.
The borrower can get in touch with the lender anytime when notices are being sent. They can notify the lender if they have any problems in life that are temporarily affecting their finances or monthly income. The borrower can share if any other hindrance is coming between making payments. In this case, the lender offers special forbearance where the lender is willing to suspend payments or reduce the amount owed to accommodate the borrower.
There are many distressing consequences of a foreclosure. However, nothing can compare to being forced to leave your house. The uncertainty of giving up your home is enough to cause stress and anxiety. It can be brutal on families as they struggle to find a new place to live in.
Apart from that, the foreclosure will appear on your credit report for seven years and blocks you from buying a home through a Fannie Mae mortgage during this period.
You will still be liable to pay back your loan after losing the house and quite possibly not even receive any accommodation compensation.
Lenders can start the foreclosure process 60 days after your first missed payment. They will go for either one of the two types of foreclosure, which are:
Judicial foreclosure is treated like a civil lawsuit, supervised by the court, while non-judicial is not.
In both cases, a legal notice is sent to the homeowner (borrower) and notified of the foreclosure procedure. The notice is also published publicly in the local paper as a requirement. In case of non-judicial foreclosure, the property is sold off in a public auction. While during the judicial foreclosure, the court first has to approve the request and then set a time for its selling.
The time this process takes depends on the state.
The most important thing to do is take action immediately. Do not wait around for things to work out eventually. Even if you think you will be able to make the next month’s payment. We strongly recommend that you get in touch with your mortgage company.
Compile all your financial details, and keep them with you when you contact the mortgage company.
You must notify them of any hardships, temporary or otherwise, so they can accommodate you. You can also offer to leave your house willingly to avoid foreclosure.
You can transfer your homeownership to the lender, so they release you from the mortgage loan, so you avoid foreclosure and keep your credit report clean.
You must note that the mortgage company is always ready to accommodate and find foreclosure solutions. It is an exhausting process for them as well, and they want to avoid it just as much as you do. Just remember to get in touch immediately and inform them about the reason for your late payments to avoid foreclosure hassle.
Foreclosure can be voided only if you take action and work with the mortgage company to get out of this troubling situation.