What is Foreclosure?
Many people think of foreclosure as if you can’t pay your mortgage or that your bank is taking your house back. But, this is a little too simplistic. Foreclosure is the legal right that any mortgage holder, or any other lender who provided you with the funds to purchase your home, has.
They can start the legal process to foreclose the property if the lien or mortgage is in default. Although there may be variations from one state to the next, there are generally two types of foreclosure that most people experience.
Foreclosure by judicial sale is the first type of foreclosure. This is required in most states. The mortgaged property is sold by the court under supervision. Proceeds satisfy the mortgage. This process is followed by any other lien holders on the home. This is legal action.
Foreclosure by power of sale is the second type of foreclosure. This is where the mortgage holder sells the property with no supervision from the court. It’s generally faster to do it this manner than through the courts. Other states also allow this. We will also discuss other issues that this route can present.
In addition to the obvious problem of losing your house, foreclosure can have a lasting impact on your credit score. It can make it harder for you to find a place to call home in the future, or limit your options of funding and loans with high interest rates.
What Scenarios Lead To Foreclosure?
Financial disasters are rare. You planned to pay your mortgage every month, and you may not be able to do so.
Other times, it could be the type of mortgage you took that causes financial hardship. These are the most common reasons for foreclosure.
Adjustable-Rate mortgages
This mortgage may be the best option for financing a house purchase for some people. The problem is that you don’t know the pros and cons associated with these mortgages. These mortgages tend to have low interest rates at the beginning, but then reset with a higher rate.
This could make the difference between a mortgage that you can afford each monthly and one that you cannot. Many people find themselves in foreclosure due to not understanding or reading the terms of their mortgage.
Earning power is lost
This can lead you to unemployment, no matter what. There are programs that can help those who have lost their job and have the funds to pay for their homes. However, there is no guarantee.
Sometimes, it can take too long to apply for these programs and get aid, especially if the lender threatens to seize the house. In many cases, losing your job can be a result of circumstances beyond your control. Therefore, it is advisable to have an emergency fund that includes a few months worth of mortgage payments. This will give you enough time to search for employment before your home is in danger.
Household changes
Although it is difficult to sum up the above, you can see that there are many things that could happen to a household, which could affect their finances enough to make it impossible to get a mortgage.
These include sudden financial and/or savings drains due to medical emergencies. A permanent loss in earning power can occur if the primary breadwinner of a household dies.
Additionally, divorce can lead to foreclosure directly or indirectly. A prolonged legal case can cause financial hardship directly as the legal costs could be high. Indirectly, a couple might only be able pay the mortgage on the house. If one of them is left with the property they might not be able manage it.
Multi-property Management
It’s uncommon for someone to suddenly find themselves in a position where they have to pay multiple mortgages. If this happens, your finances may become too stretched to keep up.
Perhaps you had to move before selling your house for work or another reason. A different situation is when you inherit property from a relative. This could happen if you live too far from the property or don’t want it.
What Happens During the Foreclosure Process?
It doesn’t matter if you have one of these reasons, or another. However, foreclosure does not automatically mean that your home is lost if your mortgage payment falls behind. You will receive a notification from your lender if you miss a payment. This can be sent by mail, phone, or both. These will tell you how much you owe, and also give you instructions on how to submit your late payment. This will put you in the pre-foreclosure phase.
This is unlikely to cause you any problems if you forget to pay the money for a simple reason. Mortgage payments due in large part on the first day of each month. There is a grace period from the 15th to the 15th. If you fail to pay or miss the deadline, you will likely receive the letter mentioned above and a late payment fee.
You will receive a letter of demand if you miss two payments. Although the lender may still be open to working with you, you must pay all outstanding debts within 30 days.
Most lenders send a notice to default when you reach the 90-day mark without making any payments. Your house may be taken away if you fail to meet the deadlines set forth in the notice of default. The lender will usually request acceleration of your loan. This means that you must now pay the entire debt and not just the missed monthly payments.
If you are in judicial foreclosure, the lender will file suit with the county to seize the property and pay your debts. You have legal rights to challenge the foreclosure in court. However, even if you don’t want to go to court in person, it is a good idea respond to the lawsuit. Failure to respond to the lawsuit will result in your forfeiture of your right to challenge foreclosure.
Let’s suppose your lender gets a foreclosure judgement. Your lender can also issue a Notice of Sale. This is the most important part of foreclosure.
The notice of trustee is also known as the notice to trustee. It informs the borrower that the lender intends to sell the property and will provide an auction date. The notice will be published in local newspapers by the lender to inform people that the property is up for sale.
The highest bidder will receive a certificate or deed in trust following the sale. The lender will then be paid the proceeds. Although you can request time to move out, your lender will not grant it. You may need to leave immediately.
The good news is: The bad news?
The bad news is: Many are still in default on their mortgage payments. Five percent of U.S. mortgages are in arrears by more than 30 days.
If a homeowner falls behind on their mortgage payments, they are in a difficult spot. They can’t make the monthly payments and face unsavory credit-crushing options.
If you are one of these people, there are options. Below are the most popular, along with their downsides and upsides. Consider the following an open house.
Instead of looking at a home in person, walk through it and take a look at foreclosure options.
Find out more about these mortgage options.
1. Reverse Mortgage
What is a reverse mortgage?
It’s best to refer to the Consumer Financial Protection Bureau (CFPB).
Reverse mortgages allow older homeowners to borrow against their home’s equity. This is a reverse mortgage, because you don’t have to make payments to the lender but instead receive money from them.
Pros
Reverse mortgages allow you to access equity in your home for day-to-day expenses, emergencies, or establish an equity credit line.
Cons
Are you willing to give your home to your kids? Are you the only one who is liable for the loan? and Are you planning to move in the near future or are you already moving? Are you able to anticipate having any problems paying your property taxes, homeowners’ insurance and/or home maintenance payments?
A reverse mortgage could cause financial problems and, at worst, leave your heirs or you without a home.
2. Modification of Your Loan
What is Loan Modification?
Nolo.com, a law website, describes loan modifications as permanent restructuring of mortgages. This is when one or more terms of a borrower’s loan are modified to make it more affordable. Modified terms can include the interest rate and length of the loan.
Pros
A loan modification may lower your mortgage rate, reduce your loan term, or bundle closing costs into the new loan.
Cons
There are many loan modification scams. There are many. It is almost an entire cottage industry to separate the good from the bad. MakingHomeAffordable.gov has some information that helps, as does the Federal Trade Commission. Modifying your loan can have many benefits, but it is important to be careful to not fall for a mortgage relief scam.
3. Refinancing
What is refinancing?
Refinance your mortgage is a way to replace the existing mortgage with one that offers better terms, such as a lower interest rate. Refinancing a mortgage is different from modifying it: Modifying a loan involves making some changes to the loan, but keeping the existing loan.
Pros
Refinancing a loan may improve terms, such as lowering your interest rate.
Cons
To get the best out of a mortgage refinance scenario, the stars must align exactly as follows: You don’t plan on moving anytime soon, your credit score is excellent, you can pay closing costs easily, and you aren’t interested in tapping into the equity in your home.
Some people find that stargazing is enough to warrant a call to Neil deGrasse Tyson and your mortgage lender.
4. Do a Short Sale
What is a short sale?
According to the CFPB, a short sale is a form of loss mitigation. It is a sale of your house for less than your mortgage payment.
Pros
You may be able to get a short sale that will allow you to pay off your mortgage, even if it brings in less than the remaining balance. You can also avoid foreclosure if you do.
Cons
Now is the time for our mortgage affordability options open houses where your credit score may take a hit. It could be a significant one. A short sale could bring down your credit score by up to 125 points.
What’s the point of worrying about your credit score. Your credit score is used by creditors to decide whether or not you get credit. It is easier to rent an apartment and get a loan with a good credit score.
5. Provide the Deed in Lieu of Foreclosure
What is Deed in Liu of Foreclosure and How Does It Work?
Your lender will take over ownership of your house in a deed of-in-lieu agreement. This allows you to avoid having it go through the foreclosure process. This is often used in conjunction with a short sale, but it’s only marginally more advantageous than a full-on foreclose.
Pros
A deed in place of foreclosure is only useful for one purpose. It’s not a foreclosure. This stage of our open house tour has few helpful stops.
Cons
Experts believe that a deed-in-place of foreclosure can have the same effect on your credit as a foreclosure. Add to that any missed mortgage payments and this scenario will have an impact on your credit score for a very long time.
If you are planning on purchasing another home, ensure that your plans are not less than two years away, or even four years. Fannie Mae will wait for this long before Fannie Mac and Freddie Mac can purchase mortgages in deed-in-lieu of foreclosure.
Lenders are reluctant to agree to deed in lieu of foreclosures. Why is this? They are concerned that the homeowner might sue them later and claim they didn’t understand their obligations. The homeowner is responsible for any second or subsequent mortgages they may have. Finally, they want to make sure the financial distress is real.
6. Allow the Property to Go Into Foreclosure
What is Foreclosure?
USA.gov defines foreclosure as when a homeowner cannot make their mortgage payments on time. This allows the lender to seize the property and evict the homeowner to sell the house.
Pros
Foreclosures can be helpful in that they relieve homeowners of the stress and pressure caused by missed mortgage payments and uncertain future.
Cons
The place you call home is no longer your home. You may see your credit report for up to seven years after a foreclosure. It can be so detrimental to your credit that it can affect everything from your ability to rent an apartment to applying for a credit card.
There will be limited opportunities for credit and expensive loans over the years. There may be limited job opportunities for you, as some employers will consider credit scores when considering applicants. To buy a house again, you will need to wait between three and seven years.
Unfortunately, foreclosure doesn’t end there. There are many long-lasting, debilitating consequences of foreclosure. These are the consequences:
A public and embarrassing eviction of your home
Stress and uncertainty of not knowing when or where you will be leaving your home.
After the foreclosure sale, owing a deficiency amount
Avoid foreclosure to lose any leasing or relocation assistance that might be available
You must forfeit the Fannie Mae mortgage loan to purchase another home. This is for a minimum of seven years.
The final nail in the coffin is foreclosure. Many scammers have taken advantage of homeowners who are struggling to pay their bills because of the stress and anxiety that foreclosures can cause. Avoid foreclosure whenever possible.
7. File for Bankruptcy
What is Bankruptcy?
Chapter 13 bankruptcy allows those with regular incomes to repay their debts over a period of three to five years. It can also help homeowners avoid foreclosure.
Pros
People facing severe financial hardships can file bankruptcy to get some relief and to be able to access the help they need to solve their income problems.
Cons
This option can do the most damage to your credit score. It can wipe out anywhere between 130 and 240 points. Your credit report can be affected by bankruptcy for up to a decade. If you are in charge of your personal finances, bankruptcy should be avoided.
8. Sell Your Home Quickly for Cash
How do you sell your house quickly?
If you are behind on your mortgage payments, there are many options for the homeowner. Selling your home to a new owner is a fast and financially viable option that doesn’t leave credit marks and won’t lead to long-term debt.
Many homeowners don’t know that they can sell their home quickly for cash.
Pros
A sale can relieve financial stress and emotional pressure, provide quick cash for your next chapter, and all this in a short time span.
You don’t need to spend time and money on repairs or deal with unexpected situations. Nor do you have to worry about the uncertainty of lenders. This option is the best for homeowners who are struggling to pay their mortgage.
Cons
Even though the property is no longer a dream come true, it was once a special place in your life. It’s hard to let go. This is normal.
We Buy Houses Minnesota – Find the Right Solution
The mental and financial toll of trying to pay off a mortgage is greater than most people realize. Experts recommend addressing the problem as soon as possible, rather than putting it off.
If you are in a position where you have to look at foreclosure or bankruptcy, we recommend that you spend 10 minutes with We Buy Houses Minnesota to take a tour of your home and see what we can offer you.
If you are behind on your mortgage payments and can’t afford to continue, a fast sale of your home could be the best way to get a better future. You could even save your credit. Get an offer for homeowners who want speed, simplicity, simplicity, and a stress-free sale of their home. No matter what your situation, we are here to help.
