No one wants to think that there may come a time when they cannot afford to pay their mortgage, but it does happen. Though foreclosure rates across the board are vastly better than they were in the years immediately following the 2008 market collapse, foreclosures are nevertheless a constant presence. If you find yourself facing foreclosure, there are several things you need to know.
What is Foreclosure
“Foreclosure” is the process by which your lending company takes possession of your house if you cannot pay your mortgage. Though the process is lengthy, the overall steps include notifications that you are behind and attempts to get you current again. If that proves to be unsuccessful, foreclosure ends with the mortgage company taking possession so it can be re-sold. If your house is headed toward foreclosure, and you are unable to get your payments current, you will be notified at what point you must vacate. Once the foreclosure sale has been completed, you no longer have any legal right to live in the house.
The good news is that you do have some time to get current on your payments. Technically, the first day you are late with a mortgage payment the bank can start the foreclosure process, but that does not usually happen. Most banks allow for a grace period before truly considering your payment as “late.” Additionally, most lending institutions do not formally begin foreclosure proceedings until you are 90 days behind.
Mortgage Relief Programs
If you are in a situation where you need assistance with your mortgage finances, consider one of several government assistance programs like:
- Loan Modification
These, and several other, programs can provide financial relief, whether via changing the terms of your mortgage to lower your monthly payments or by facilitating
However, just because you have some time doesn’t mean you should put off getting back on track. If you know you are going to be struggling temporarily to stay current, you have a few options. The first, of course, is paying the amount you are behind. You can do so at any point until five days before the foreclosure sale. However, this can often be difficult to do once you start to fall too far behind. Sometimes you can work directly with your mortgage company to get back on the right track. But if your mortgage company is demanding current payment in full, you may have to look into another option.
Selling Your Home
If you have enough equity built up, you can sell your home. This will pay off the remaining debt to your mortgage company. You can then start fresh somewhere else, hopefully with a little money left over from the sale. However, this strategy only works if your home is worth more than what you owe, plus the Realtor commissions and closing costs.
A short sale is an option to avoid having a foreclosure on your record. Note that it still means you must relinquish your home. With a short sale, you list your home for sale and find a buyer who is willing to purchase it for what you owe, rather than what the current value is. Your bank then must agree to the sale, because they are getting less than market value. It can be a win-win when it works, because the bank avoids the expense of seeing the property through the foreclosure process, and the buyer gets a property below market value. However, there are extra hoops to jump through to get the mortgage company to approve the sale. The buyer has to be willing to wait longer than with a standard real estate transaction.
If you choose to file for bankruptcy, any foreclosure proceedings will immediately stop until the bankruptcy has been finalized. Bankruptcy can ultimately allow you to keep your home if it restructures your debt such that you can now afford to get current on your mortgage payments. However, this option carries long-term penalties on your credit rating and your ability to get approved for credit. It is best to discuss all potential pros and cons of bankruptcy with a local attorney who specializes in this area.
Working Through a Foreclosure
If you find you are falling behind on your payments, you have legal rights even if you do find foreclosure is the only option. Your lender is required to notify you that they have started the foreclosure process. They must also provide documentation of your past-due amounts and dates. You can dispute their data if you have different documentation. Many lenders are willing to talk with you to see if alternative arrangements can be made to get you caught up. Remember that it is not in the mortgage company’s best interests to go through a foreclosure; it’s an expensive process, and they are left with a house that then needs to be re-sold. If there is another option, you stand a good chance of being able to work out the details if you maintain open communication with your mortgage company.
Cash for Keys
When foreclosure is inevitable, you may be eligible for a “cash for keys” offer after the fact. If so, your mortgage company will offer you cash to vacate the home quickly and peacefully. Offers can vary but often range anywhere from $500 to several thousand dollars. A cash-for-keys deal can also be part of a deed-in-lieu offer, in which you agree to turn over the property to the bank directly without going through a foreclosure.
The foreclosure process can be intimidating, but if you find you do not have another option, the best thing you can do is to contact your mortgage company sooner rather than later. With open communication, you have some options. You may even be able to make arrangements to stop the proceedings depending on your circumstances. And if you do complete the foreclosure process, you may be able to get some assistance to help you get a new start.