What You Need to Know About Foreclosure

 

 

Summary – Foreclosure is the option available to lenders in case of payment defaults. They could assume ownership or sell a property to reclaim their amount. The homeowner can try for forbearance, loan modification or short sale to prevent foreclosing.

Foreclosure is the method by which lenders, who have been facing default payments for some time (two to three months) and are convinced that the borrower will not be able to pay back the loan, recover their capital. They either assume the property’s ownership or try to sell it off. Lenders typically file for foreclosure after they have contacted you both by means of a demand letter and over phone (typically a month after your payment date). They file for the papers with whichever authority is in charge. The foreclosing sale itself may happen three to four months after that.  

After the notice is recorded, an ad needs to be published for five to six weeks in a newspaper and a notice needs to be sent to the homeowner. Three to four weeks prior to the sale, the authority would also send a notice to the homeowner mentioning the sale and methods by which you can prevent the process. But, you do not have to wait till this particular notice arrives to do something about foreclosure. If you know that you will have to start defaulting or are already facing late payments you should start thinking about how to avoid losing the house to foreclosing.

Your best way to avoid foreclosure would be approaching the lender. You could ask the lender to offer forbearance or loan modification. Forbearance would mean that the lender allows you to go without paying for a few months in return for higher payments afterwards, till you catch up with the payment. It comes in handy if your lean period (when you cannot pay your mortgage) is going to last only for a few months and you could make higher payments without fail after that.

Loan modification involves modifying the terms of the loan such as loan term, mortgage payments, at times even capital. Since foreclosure is not a pleasurable experience for the lender either, it is very probable that you will get some modification (do not seek the help of people claiming to be lone modifiers unless they are registered and licensed. Do not make any upfront payments). You and your lender could also try and get a payment from the FHA Insurance Fund to make up for lost payments (Partial Claim). Do either only if you are able to meet the payments after that.

If you have equity on your home, you could also try selling it. If you do not have equity then this may not be an option. Do not list with a realtor if your property could get tied up. You also have the option of voluntarily giving back the property to the lender (Voluntarily Foreclosure) or getting somebody else to assume the loan in return for the property (only possible for loans made before 1988) or file for Chapter 13 bankruptcy (may be costly; you would have to make higher payments after that or you will lose your property again (Chapter 7 bankruptcy- It looks even worse on your credit report too). Finally, you also have the option of a short sale (only if the lenders agree to the reduced money that they will receive). The house is sold for an amount less than the loan amount and the proceeds are given to the lender.

Knowing these details about foreclosure will help you decide on how to proceed if you are facing payment defaults. Do not be an ostrich. Do something.

Written by Carol Pefley

www.carolpefley.com

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