Saving Your Home From Foreclosure

 There are measures you can take to avoid catastrophe

Getting the house of your dreams, or any house, does not guarantee that it will be safe from foreclosure. A crisis may arise that puts you at risk for foreclosure, especially if your dream home requires substantial mortgage payments. If your home is at risk of foreclosure, you should address the issue immediately, as it can be avoided by taking the appropriate measures.

You have options to prevent your lender from foreclosing on your property.

The mortgage can be reinstated if you are able to collect sufficient funds to cover all missed payments in a single payment.

You may be able to negotiate with your lender for a short refinance.

You may request a period of forbearance from your lender in the event of a sudden emergency that will likely be resolved soon.

If you end up in foreclosure, it may be worthwhile to see if a friend or relative will purchase the property and offer you a lease with the option to buy it back.

How to Avoid Foreclosure

It is essential to conduct exhaustive research on the best available interest rates and to choose the most suitable mortgage term. Typically, 40-year mortgages allow for lower monthly payments than 30-year fixed mortgages. However, the interest rates on these mortgages are typically higher. Utilize an online mortgage calculator to estimate and budget your total mortgage costs.

If your home is at risk of foreclosure, do not pack your belongings; instead, take action. Anyone with a government-backed loan provider and built-in mortgage insurance, such as an FHA loan, should have easy access to the following options for avoiding foreclosure.

Reinstatement

When you fall behind on your mortgage payments, reinstatement allows you to make a lump-sum payment (which may include any applicable interest and penalty fees) prior to a specified date.

Short Refinance

In a short refinance, the lender may agree to forgive a portion of your outstanding debt and refinance the remainder into a new loan.

Refinancing your mortgage with a private lender as a hard money loan should be a last resort due to the extremely high interest rates and fees.

Forbearance

Occasionally, a temporary financial difficulty, such as a medical emergency or a sudden, unexpected decrease in income, may prevent you from making timely mortgage payments. If your lender believes that you have a valid reason for the missed payments, it may grant you a forbearance to assist you.

Depending on your financial situation, your lender may agree to a repayment plan that temporarily reduces or suspends your payments for a period of time. To secure this agreement, you must guarantee your lender that you will strictly adhere to the new repayment terms.

During the peak of the coronavirus pandemic, residential borrowers who were experiencing financial hardship due to COVID-19 were permitted to request a six-month forbearance on their federally-backed mortgage loan.

Mortgage Modification

Loan modification allows you to refinance or extending the term of your mortgage loan. The lender may agree to monthly mortgage payments that are affordable for you. To qualify for this option, you must convince your lender that your financial issues are temporary and will soon be resolved.

If a deferral plan agreement places the full or partial amount of arrearages (or default amount) at the end of the loan, the lender may require a lump sum up front or agree to a monthly payment for the difference.

Note that if the borrower's financial situation improves or their income rises, a repayment plan may include the regular monthly mortgage payment plus a prorated amount of the arrears to be paid each month.

Illegal is discrimination in mortgage lending. There are steps you can take if you believe you have been discriminated against based on your race, religion, sex, marital status, use of public assistance, national origin, disability, or age. The filing of a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

Refinance With a Hard Money Loan

If your lender views you as a high-risk borrower, he or she may refuse to refinance your loan. To avoid foreclosure, you can contact a private lender to refinance with a hard money loan. Despite their exorbitant interest rates and fees, one of these loans could buy you the time you need to avoid foreclosure.

In most cases, bankruptcy will not buy you enough time to catch up on your debts; it merely delays the inevitable.

Reverse Mortgage

If the homeowner is at least 62 years old and has sufficient equity, they may consider a reverse mortgage to prevent foreclosure. This option necessitates a substantial amount of equity that must be sufficient to cover the defaulted amount.

What to Do When Foreclosure Is Inevitable

If your circumstances make foreclosure unavoidable, here are some ways to mitigate the financial impact.

Pre-Foreclosure Sale

If you are convinced that your financial situation is deteriorating, your only remaining option is to sell your home for less than the amount necessary to pay off the mortgage loan. You may be eligible for this alternative only if you are several months behind on your mortgage payments or if your lender specifies otherwise. Additionally, you may be required to sell your home within a certain timeframe.

You could sell your home to a friend or an investor who will lease it back to you if you cannot bear to move. The best way to accomplish this is to sign a lease (or contract) that includes a "option to purchase" clause, which grants you the right to buy back your home once your financial situation has improved. However, there are significant risks associated with this option, as the investor can borrow against your property or even sell it without your permission while you are leasing it.

Deed in Lieu of Foreclosure

Another option is to give the lender your property in exchange for debt forgiveness. Only if you cannot sell your home prior to foreclosure will you be eligible for a deed in lieu of foreclosure. The only advantage of this option is that you are saved from foreclosure and the resulting damage to your credit score.

Bankruptcy

Many individuals believe that declaring bankruptcy is an excellent way to avoid foreclosure. Bankruptcy can only delay the foreclosure process and possibly buy you time to catch up on payments.

Once the bankruptcy-imposed suspension is lifted, the lender can demand full payment, which may necessitate a refinancing loan application. However, the likelihood of obtaining a refinance loan is practically nil at this point, as the bankruptcy filing will have left you with a poor credit score.

What Does Foreclosure on a REO Mean?

A real estate-owned (REO) foreclosure is a property that has been foreclosed upon, but failed to sell at auction, and subsequently becomes the property of the bank or lender.

What Is a Deed in Lieu of Foreclosure?

A deed in lieu of foreclosure is an agreement between a borrower and a lender in which the borrower relinquishes the deed (ownership) to avoid the foreclosure process.

How can I avoid a foreclosure?

You may be able to avoid foreclosure by negotiating terms with your lender, such as forbearance or loan modification. Refinancing options may also include hard money loans and reverse mortgages.

What Happens If My Home Is In Pre-Foreclosure?

Ask your lender if you can negotiate back payments and if the mortgage can be put into forbearance if your home is in pre-foreclosure.

How Long Does the Foreclosure Process Take?

Depending on the state, foreclosure can take over a year.

The Conclusion 

As the homeowner, it is your responsibility to take all necessary measures to prevent foreclosure. The simplest method is to avoid situations that trigger it. Excessive debt, adjustable-rate or exotic mortgages, insufficient emergency funds, lack of insurance, and purchasing a home that you cannot afford all increase the likelihood of foreclosure.

On occasion, financial setbacks can prevent homeowners from making their regular mortgage payments. When this occurs, the only prudent course of action is to immediately notify your lender. In most instances, they will be willing to assist you in catching up. Typically, lenders are only interested in foreclosing on your home as a last resort due to the costs and duration of the process.