The effects of foreclosure can have long-term impacts on your personal and financial life. Foreclosure and the impact on your credit score leading up to it can result in increased costs for things like credit cards, bank loans, cell phone rates, and insurance. Missed payments and foreclosures can also affect your ability to rent a home or even be considered for certain jobs, as many housing providers and some employers check your credit report.
You must Understand Foreclosure and How to Stop It
What is a Foreclosure?
When you purchase a house, you will sign various documents. In particular, you will sign a promissory note, which represents your commitment to repay the loan, and a deed of trust (in Missouri) or a mortgage (in Kansas), depending on the state’s lending laws. This deed of trust or mortgage will be recorded in the public record, outlining your obligations such as making payments, property upkeep, and tax payments. Additionally, it specifies the repercussions if you fail to meet these obligations. It dictates how your lender can initiate foreclosure, either through a judicial process involving a judge or a non-judicial process.
Why Foreclosures Happen
It’s not rocket science . . . most foreclosures happen because the borrower does not pay their mortgage. Why they can’t pay can vary . . . job loss, catastrophic expenses often due to medical bills, divorce, or the main breadwinner passing away.
How do Foreclosures Work?
Despite what some articles by our competitors will have you believe if you are in foreclosure, it’s not like you miss a payment today and get kicked out on the street tomorrow. No, it is a slow process, which gives you a long time of worry and stress, but it also gives you time to come up with a solution.
While the foreclosure process is going to vary from state to state and lender to lender, they will all start with your lender or servicer sending you a notice that you have missed a payment. If you have just missed one or two payments due to a short-term issue and are now able to pay, CALL YOUR LENDER and work out a plan to catch up on the missed payments. They will work with you, and the sooner you work with them and get a plan, the cheaper it will be, as all legal costs they incur or fees they have to pay to have someone drive by your house and tell them what it looks like, all of those fees get passed on to the borrower. So if you act quickly, those fees can be prevented.
But even after foreclosure, you still have time in the house. In judicial states, like Kansas, you can have a right of redemption, which allows you to still get caught up with your lender (or sell the house.) And even after there is no time left for you to save your house, you should still stick around as most lenders might offer you cash for keys where they pay you to move out. As a last resort, they would have to evict you, which could give you another couple of months in the house.
How to Avoid a Foreclosure
The best way is to just pay your mortgage. Whatever you decide to do, ALWAYS, keep in touch with your lender. The more you make yourself available to them and work with them, the better your outcome.
Avoid Foreclosure and Stay In Your Home
- Bring Your Mortgage Current by paying with other money.
- Loan Modification, talk to your lender as there may be government or lender-offered programs that will allow you to modify your loan in some way that would defer missed payments and make future payments more affordable.
- Forbearance, for a large part of the time around COVID almost all lenders were required to offer forbearance, which allowed you to not pay your loan and then have the missed payments either due at some point in the future or tacked on to the end of your loan. But even now, you might be able to find a few who will offer forbearance.
- Refinance, while this may not be an option if you have missed a lot of payments and lowered your credit score, if you are just getting into trouble you may be able to refinance with a new or current lender to lower interest or extend out the time frame on your loan and make the payments more affordable. There may even be special programs to help you refinance depending on the type of loan you have.
Avoid Foreclosure, but Sell Your Home
- Have Equity. For those homeowners who have equity in their home, meaning the value of their home is higher than what they owe on the home, they may just be able to offer their home for sale. They can market it for sale by owner or if they have enough equity to pay a real estate agent, they could list it with a professional. Then sell it and pay off their mortgage, but you will have to move out.
- Have No Equity. In other cases, homeowners may owe more on their home than the current value. Many in this situation think they are stuck and that they cannot sell their home, but there is still hope. Most lenders will work with you to negotiate a short sale, whereby you are allowed to sell the home for less than what you owe. There are a lot of regulations governing this and there can be tax consequences. So be sure to talk to your lender, a short sale expert, and a tax advisor.
Short Sales
There are thousands of resources on short sales on the internet. They have been around for a very long time and became a HUGE business that exploded and gained a lot of rules and regulations during the Great Recession. You would need to contact your lender and ask about a Short Sale. They would then most likely provide you with a short sale package that explains their process and rules.
We highly recommend working with a real estate agent who is familiar with the process to help you navigate and get the best price for your home. They would list it for sale in the MLS and market it for sale. Once you have an offer, they would submit the offer to the lender for approval, this could be a short process or it could take months.
Do Nothing
Another option is to just do nothing. It is not an option that we recommend. But the majority of people take this route. They ignore the letters sent by their lender, their servicer, and the attorneys. They ignore the letters from lenders offering to help them refinance, investor buyers offering to purchase, and Realtors offering to sell the home for them. They wait until the house is foreclosed, the eviction process is completed and the sheriff comes to the door to set them out. This option causes the most stress, destroys credit, puts an eviction on your record, and often comes with a huge tax bill at the end.
Avoiding Scams
As with anything, when someone is in financial trouble there are a ton of people across the industry that can and do help and along the way earn a profit: real estate investor buyers, realtors, lenders, consumer protection companies, and more. While most of these folks are legitimate business people wanting to offer you assistance to make a profit, some may be a scam, and others just don’t know what they are doing. So before accepting help, do a bit of homework on the company or person to avoid a foreclosure rescue scam – how long have they been in business, what kind of reviews do they have online, have they helped real people like you, do they have references from not only past clients and customers but from others in the industry.
Solution
Want to end your foreclosure worries today? If you are at the point where you want to or know you have to sell your home, give us a call. We are cash buyers for homes and if you have equity we may be able to simply buy your home, we can also talk to your lender to see what your options are, and if you require a short sale, we have a select group of expert short sale Realtors that we work with that can help you through the process of a short sale. To get started, tell us a bit about your house and situation, or give us a call.