What is Foreclosure?
Foreclosure is when a homeowner no longer makes their mortgage payments each month, and the bank or lender re-possesses the property and tries to sell it for a lower cost to recoup some of their loss. This is different than a short sale. Short sales are where the homeowner communicates with the lender about their inability to pay their mortgage payment and constructs an agreement to sell the property for less than the homeowner owes on the property alleviating the stress of making the mortgage payment. A short sale is much better than a foreclosure for the homeowner in the long run financially speaking.
What Happens When a Mortgage Payment is Missed?
There are a lot of ways to avoid a foreclosure but, if you have missed a payment the first thing you need to do is to contact your lender because they have the legal right to seize the home and evict you. Trying to cooperate and communicate with your lender is the best way to avoid foreclosure and find other solutions to either keep your home or sell your home with the lender’s approval.
How to Avoid a Foreclosure
Like I mentioned before, if you feel that you cannot make your mortgage payment, contact your lender immediately. They may have programs in place to help you avoid foreclosure and work up a special plan that either allows you to modify the existing mortgage or find other solutions. Here are some of the ways you can avoid foreclosure with short-term and long-term options.
First of all, remember that your situation is not hopeless. There are solutions but you have to communicate immediately with your lender about your concerns and your financial stress.
Consider a mortgage modification. If you have missed a payment and don’t think you’ll be able to make up the difference, your lender may agree to modify your mortgage. They may add the past due amount into your existing loan and refinance it long-term. This is if you want to keep your home and just need a different payment plan.
A pre-foreclosure sale. You can sell your property for a lesser amount owed if the loan is at least two months delinquent, the house is sold within 3 to 5 months, and the lender obtains a new appraisal with a new market value. Again, you must communicate this with your lender.
Deed in lieu of foreclosure. This program allows you to give back your property and forgives the debt but it will have a negative impact on your credit history. However, it is better than foreclosure and if there are other liens against the home, this won’t be an option.
For temporary or short-term solutions to a missed payment, there are some options that homeowners can take.
Forbearance. You may be able to delay payments for a short period of time as long as you’ll be able to bring the account current later on.
Reinstatement. If you are behind in payments but you know you’ll get a very large lump sum of money such as from a windfall or inheritance that will bring your payments current again, you may be able to use a reinstatement.
Repayment plan. If you are currently behind on your payments but you can continue to make regular payments as of now, the lender may allow you to catch up by adding a portion of the overdue amount to your existing monthly payments until the account becomes current.
Partial claim. This is a one-time payment from FHA insurance fund as long as your loan is at least four months delinquent but not more than 12 months and you are able to begin making full mortgage payments once again. Your lender will need to file this Partial Claim on your behalf with the US Department of Housing and Urban Development. They will pay the lender the amount necessary to bring your mortgage current and you must have a promissory note and a lean on your property until the note is fully paid.
There are options and the important point to remember is that it is not hopeless. There are a lot of options and programs in place to help you keep your home or sell your home with as much dignity and financial strength as possible. Call us today if you have any questions on foreclosures, reinstatement, or mortgage modifications.