Foreclosure papers with gavel on table

What Every Homeowner Needs to Know About Avoiding a Foreclosure

Although the rate of foreclosures has significantly declined since the recession that started in 2008, it still remains a concern for homeowners all across the country. Whether you are currently having trouble making payments, foresee potential issues in the future, or have complete confidence in your ability to make mortgage payments, all homeowners, regardless of the situation, should understand what can be done to avoid a foreclosure.

A foreclosure occurs when a mortgage borrower cannot make their loan payments, forcing the lender to take possession of the property. There is, of course, a long legal process (the bank can’t take your home after one missed payment) but when a foreclosure happens, the homeowner is often left still owing a large amount of money. The home is sold at auction, usually for a significantly-discounted price. Say, for example, you owe $350,000 on the mortgage loan, but the home sells at auction for $300,000, which goes straight to the bank. In most cases, you are still on the hook for the remaining $50,000, even though you no longer possess the home.

For this reason, avoiding foreclosure is important for the financial security of many homeowners. If you think a foreclosure may be on the horizon, it helps to understand your rights and your options.

Heading to Foreclosure? What You Can Do for a Better Result

Research the Exact Details of the Default

Before making any choices, be sure you understand the complete details of the loan default. This will give you a foundation for how much you owe and what can be done to remedy the situation. Many lenders will work with you if you take a proactive approach to redeeming the issue, so contact them as soon as trouble occurs and you’ll give yourself a great chance at keeping the home and your financial wellbeing.

Ask the Lender for Ways to Remedy the Default

Once you understand the issue, you can begin discussing options with your lender. In fact, you should take this step even if you see potential issues in the future. Let them know about your financial difficulties and ask if there is anything that can be done to remedy the issue. Working with the lender may open up options that allow you to keep the house without emptying your bank account.

Reach Lower Payments by Modifying or Refinancing Your Loan

If you are talking with the bank and want to remedy the issue, you may be able to avoid a foreclosure by restructuring or refinancing your loan. There are some government programs that can help you refinance your loan so you avoid foreclosure, including the Home Affordable Mortgage Program, which lowers your monthly payments to 31% of your verified monthly gross in order to make your payments more affordable.

You may also be able to refinance through traditional means to secure a lower payment. For example, if you have a 15-year mortgage, refinancing to a 30-year may give you the financial flexibility needed to make your mortgage payments. Talk with your lender about refinancing; you’ll likely see that they are much more enthusiastic about refinancing than letting the home become a foreclosed property.

A review of the loan and your legal rights could help you avoid a foreclosure and stay in your home.

Review Your Potential Legal Defenses

Just because the bank sends you a foreclosure-notice letter does not automatically mean foreclosure is imminent. On the contrary, you have rights, and you may have a legal defense against the foreclosure. For example, if the foreclosing party did not follow proper procedure, you may be protected. The foreclosure process has many procedural requirements, and if a mistake has been made, it could delay the process, allowing for time to gather your financial footing.

The foreclosing party may also have made a serious error in your account, leading them to seek foreclosure when they have no right. This can happen if the lender did not properly document payments or mistakenly charged the wrong amount. These issues are rare, but they do occur, and it may be worth consulting an attorney to see if you have a legal defense against the foreclosure.

Look to a Short Sale

If you can’t avoid losing the home, you may be able to take advantage of a short sale. A short sale, which occurs after the lender has filed for a foreclosure but before the foreclosure itself, allows you to sell the home before the auction occurs. This step has advantages for both you and the lender, as you’ll likely get a better price for the home than you’d see from a foreclosure, and the lender is able to avoid the hassle and costs of processing and completing the entire foreclosure. After all, the lender is simply going to take possession of the home and resell it, so a short sale makes their work easier.

Deed in Lieu

Another option that you have available is the deed in lieu of a sale. Essentially, this process allows you to give the title back to the bank, freeing you of any financial responsibility connected to the property. However, banks are extremely hesitant to agree to this solution, as they basically have to assume all the financial responsibilities of owning the property, such as taxes and any lien payments. You’ll likely find that most banks won’t agree to this step, but if they do, it gives you a tremendous opportunity to move on from a foreclosure.

Seek Help Through Government Programs

There are many government programs created to help borrowers who are experiencing financial trouble and nearing foreclosure. For example, the Making Home Affordable program, which administers HAMP, can give you expert advice on dealing with foreclosure issues. They have a hotline that you can contact to get free advice on a wide range of issues involving foreclosures.

Help Secure an Affordable Mortgage, Even After a Foreclosure

If you have a foreclosure in your past, let us help you get affordable financing so you can move forward with your life. We can’t promise approval, but we can promise to do everything in our power to increase your chances of affordable terms on your next mortgage loan.