The last couple of years has been challenging for many people, which may have caused you to miss mortgage payments. You may have received notice from your lender informing you that they plan to start foreclosure proceedings. If you aren’t proactive, you risk losing your home. No longer having a home can be an emotional and financial nightmare.
While foreclosure is a scary term and a troublesome circumstance for homeowners, you can mitigate the adverse effects.
Whether you’re learning about the definition of foreclosure, dealing with pre-foreclosure, or seeking information about selling a foreclosed home, it’s crucial to understand the process you might be handling and how you can protect yourself in these trying times.
Please read our guide on selling a home in foreclosure, how you can sell your home for a fair price, and get rid of a house that may be causing issues for you.
House Foreclosure By Definition
When you get a letter from your mortgage lender, you may be asking what is foreclosure? Foreclosure is the process triggered when you miss mortgage payments or you default on your loan. When your home enters foreclosure, the lender usually repossesses it and then seeks to sell your house.
This legal process is the lender’s attempt to recoup the amount you owe on your defaulted loan. A lender secures your mortgage loan with real estate, which means that your home is collateral. Your house’s status as collateral enables the bank to legally take your home when you no longer make your mortgage payments.
Each state has its laws governing the foreclosure process. Still, a lender can typically start foreclosure proceedings when you miss at least one mortgage payment.
Pre-Foreclosure-What Is It?
Pre-foreclosure is the first step of the foreclosing process. It allows you to live in your home before the foreclosure. Pre-foreclosure happens when you miss a mortgage payment. After 90 days of missed payments, the lender will issue a notice of default. It’s a legal notice and informs you that the lender has started the legal process of foreclosure.
Generally, you have 30 days to get current with your payments and reinstate the loan, also called the reinstatement period. When the reinstatement period ends, your lender begins foreclosure if you haven’t paid the missing payments.
Different states have different legal requirements, but pre-foreclosure is usually the same in most jurisdictions. Typically, foreclosure proceeds in the following steps:
- Default of mortgage: 90 days of missed payments usually triggers a pre-foreclosure. In other words, three months of missed mortgage payments put you in default on your loan.
- Notice of default: The lender notifies you that you’re in default and they will begin foreclosure within 30 days.
- Public notice: After the lender sends the notice, your name may appear in public listings of people in foreclosure.
The Foreclosure Process
Different states have different rules for the foreclosure process. But, each state will have the same general foreclosure process with similar steps, which we’ll review now.
Before your lender goes through foreclosure proceedings, your loan must be delinquent for at least 120 days; some exceptions apply. Your lender must make a reasonable effort to contact you about the missing mortgage payments. They also have to make you aware of foreclosure alternatives. In most cases, the borrower has options to avoid losing their home despite the start of foreclosure proceedings.
Usually, a lender tries to contact you about the missing payments so they can discuss a resolution with you. If you and the lender disagree on a solution, and you’re 120 days delinquent, the foreclosure progresses to the next step.
Next, your lender refers your defaulted loan to foreclosure attorneys. Depending on the state, the attorney will file a notice of default.
There is a lot of variance between states in the timeline for when pre-foreclosure ends, and foreclosure begins. The difference in timelines depends on whether your state engages in judicial or nonjudicial foreclosures.
The two types of foreclosure: judicial and nonjudicial foreclosures
There are two types of foreclosures: judicial and nonjudicial foreclosure.
Judicial foreclosures occur as standard in all states. Under a judicial foreclosure, your lender files a lawsuit against you in court. You have a specific period to respond to the case and pay the outstanding debt. Your home can be foreclosed and sold if you don’t make up the debt. A judicial foreclosure is more time and resource intensive than nonjudicial foreclosures.
Nonjudicial foreclosure occurs when you have a power of sale clause or a promissory note attached to a deed of trust.
|These 22 states only allow judicial foreclosures.
|These 28 states allow power of sale clauses and other deeds of sale:
After the foreclosure, the court or lender may issue you a notice to vacate. Each state has specific rules governing how an entity provides you notice. This notice alerts you to the threat of eviction. Generally, the letter gives you a specified time to vacate the property.
If you choose to ignore the notice, the lender may sue you. That lawsuit can hamper your future attempts to rent or buy a home. Usually, once a notice to vacate makes it to you, leaving is your best option.
Effects on your credit
Foreclosure damages your credit and stays on your credit report for seven years after your first missed mortgage payment. Each reporting agency uses formulas to calculate your score, so the number of points you lose from a foreclosure varies.
Can You Sell A House In Foreclosure?
Typically, yes, you can put your house up for sale in foreclosure. You’ll need to accept that your home is in foreclosure and quickly act.
You won’t want to waste time denying your reality. Also, you’ll need to reconcile the fact that you must sell aggressively. That might mean leaving some money on the table.
5 Strategies For Avoiding Foreclosure
Financial difficulties can affect anyone, including you, and there are no certainties. If you are facing challenges with mortgage payments and foreclosure seems possible, wait to jump to conclusions.
Apply for forbearance
A forbearance agreement may be a good option if you are having difficulty making payments. To be eligible, you need to show that you can make payments on time soon.
Once the forbearance period is over, you will need to start making regular payments again and adding extra money to cover any previously missed payments.
Get current on your loan
If homeowners have the necessary funds, they can pay for all missed loan payments, interest, fees, and expenses to reinstate their loan. Additionally, there is usually a specific period outlined in state laws that allow homeowners to reinstate their loan for a foreclosed home.
A loan modification is when the lender and borrower agree to change their mortgage terms to lower monthly payments. The modification usually involves:
- Lowering the interest rate.
- Adding any missed payments to the total balance.
- Extending the payment period from 30 to 40 years.
Negotiate with your lender
If you need to help catching up on payments, don’t worry. You can create a repayment plan that lets you make up missed payments gradually and keep up with current ones simultaneously. A repayment plan is a great way to get back on track without worrying about falling further behind or defaulting on your loans.
For the plan to succeed, your income must be sufficient to cover current and overdue payments. Depending on the situation, you and your lender may set the repayment schedule for three, six, or nine months.
Refinance your home
If you’re facing foreclosure, consider refinancing your mortgage to start fresh and achieve financial freedom. You can redeem your mortgage in many states by refinancing it before a sale.
Some states may also offer redemption options after the sale. Take action now if you find a better interest rate that allows you to pay off your old loan.
What To Do If Your House Is In Foreclosure
If you’re keen on avoiding foreclosure, you have some options available. Remember, once you’ve missed three or more months of mortgage payments, your lender will likely start foreclosure. Here are 4 options you have available to you:
- Find a housing counselor: A Department of Housing and Urban Development (HUD) supported counseling provider may give you advice on loss mitigation if you face foreclosure.
- Forbearance: Mortgage forbearance enables you to delay your mortgage payment for an agreed-upon time. The lender will expect you to make your payments after the forbearance. If you were in forbearance for 3 months, you must pay for those 3 months when the forbearance ends.
- Loan modification: A loan modification changes your home loan’s terms, which might work if you can’t refinance. A modification to the interest rate or loan length can help make your loan mortgage payment more affordable and keep you out of default.
- Negotiate with your lender: This option is ideal if your temporary financial situation makes you miss your payments. Suppose your condition improves, and you can continue making mortgage payments. In that case, your lender may be willing to negotiate a payment plan for the outstanding debt.
How To Sell A House In Foreclosure
When your lender provides notice that your mortgage is in default and foreclosure is imminent, you may still be able to sell your home.
If you’re still in pre-foreclosure, now is the time to take action. Speed is paramount, and here are the general steps you should take before selling a home in pre-foreclosure:
- Contact your lender to let them know you plan to sell your house.
- Figure out how much you owe for your mortgage, missed payments, and late penalties. Look at your communications with your lender to find out the principal balance and interest.
- Find out how much your home is worth. You can use an online calculator or an appraisal. If you want to avoid the hassle of paying appraisal fees or finding a reliable online calculator, consider contacting a cash-for-homes company.
- Stay in contact with your lender. It’s tempting to ignore your lender’s calls and letters, but you must keep them abreast of your actions. Tell them you plan even if it feels like it’s constantly changing. Lenders are usually willing to work with you when you decide of selling a house in foreclosure represents a risk of selling at a significant loss.
Although the housing market is steadying, the past couple of years have seen home values increase. The growth in value means that you might have equity in your home, and selling your troublesome home may enable you to pay your mortgage and have some cash left over in profit.
If your home is already a foreclosed property, you may have to attempt a short or foreclosure sale. A short sale is when you sell your home for less than what’s on the mortgage. Usually, a lender should go through a short sale instead of a public auction. To conduct a short sale, you must:
- Notify the lender and get their approval for the sale. The lender receives all the money from the sale.
- Get a bid and present it to your lender. A lender will generally be more amenable to a short sale because they may lose money if the home goes through foreclosure and then a foreclosure auction. The highest bidder may not be high enough for them to generate a profit on the homes for sale.
- Negotiate with your lender. You may ask your lender to forgive the leftover balance that the short sale doesn’t cover. You’ll want to ask them not to pursue a deficiency judgment.
- Be prepared to pay the outstanding portion of our mortgage if the lender doesn’t forgive your leftover balance.
Losing your home to foreclosure can be among the most emotionally draining and financially tricky events in your life. Although the situation is grueling, you have some options available to soothe the pain.
It’s essential to know how the process of selling a home in foreclosure unfolds; we’ll review the steps below:
- Notice of default
- Foreclosure (judicial vs. nonjudicial)
- Credit reporting
Remember, you can sell home in foreclosure, but speed is of the essence. In general, you should:
- Communicate with your lender
- Find a legitimate buyer.
- Negotiate with your lender