What Is Foreclosure?
Foreclosure is a process that happens when a homeowner repeatedly fails to make their mortgage payments. When a home is foreclosed on, a lender typically repossesses the property and attempts to sell it to recover their loss. Because the home serves as collateral for the loan, a lender can legally repossess the property when a borrower falls too far behind in payments, or stops paying all together.
What is the Process of Foreclosure?
A lender contacts a homeowner to inform them of their delinquency and notify them about the possibility of foreclosure. The lender and homeowner explore options to keep the loan current. If the homeowner can’t bring their mortgage up to date, the lender may proceed with foreclosure.
Ask for Help at the Beginning of Hardship
A lender must wait until the loan is at least 120 days past due, with some exceptions. Lenders and loan servicers are mandated to diligently reach out to borrowers regarding missed payments and explore foreclosure alternatives in good faith. Borrowers facing financial difficulties have several avenues available to prevent home loss, even after the initiation of foreclosure proceedings. Typically, foreclosure proceedings begin after a borrower has missed a minimum of four payments. Defaulting occurs when a borrower fails to adhere to the repayment terms outlined by the lender. Even at the start of legal actions, borrowers retain the option to seek loss mitigation solutions and explore alternatives aimed at retaining ownership of their homes. For further information, borrowers can explore loss mitigation.
*California is a Nonjudicial Foreclosure State
This means that foreclosures without court involvement are allowed.
Eviction
If a homeowner can’t bring their loan current, eviction will likely be the next step in a foreclosure proceeding. Homeowners may receive a notice to quit from the lender to leave the home. A letter or warning typically includes the timeline residents must vacate the property this can be anywhere from 3 – 30 days. Lenders may sue if residents ignore an eviction notice and stay in the home.
Foreclosures do Appear on your Credit Report
A foreclosure is an adverse event that stays on your credit report 7 years from your first missed mortgage payment. Your existing credit history will significantly impact how foreclosure affects your credit score. The negative impact your credit score will take from a foreclosure can hurt your ability to purchase or rent a home. in the future. Many lenders won’t consider an applicant with a foreclosure on their credit report, but some lenders may be more forgiving, especially if the foreclosure happened years ago.
How Can I Avoid Foreclosure?
Apply To Refinance
You can’t refinance your mortgage once the foreclosure process has begun, but if you haven’t reached that point and haven’t missed any payments, refinancing to a more affordable monthly mortgage payment may help you avoid defaulting and keep you in your home. If you’re experiencing financial difficulties, contact your loan servicer or lender to discuss foreclosure prevention before you miss a mortgage payment.
Ask For Forbearance
With forbearance homeowners can temporarily pause or lower mortgage payments, possibly giving them the breathing room they need to rebuild their savings, increase their income or decrease debt to help get back on track with their mortgage payments.
However, forbearance doesn’t erase debt. You will need to make a plan with your lender such as a repayment plan, loan modification, deferral when forbearance ends.
Ask For Mortgage Reinstatement
Borrowers can also request mortgage reinstatement. It’s the quickest way to catch up on missed mortgage payments. With mortgage reinstatement, you make a lump-sum payment that includes missed payments, interest and fees to make your loan current and resume your regular mortgage payments.
Arrange A Repayment Plan
A lender may agree to put a borrower on a repayment plan to help them avoid losing their home. Borrowers typically pay a portion of their past-due amount with their monthly mortgage payment until the overdue balance gets paid. Once the mortgage is current, a borrower returns to making their original mortgage payments.
Apply For a Short Sale
A Short Sale is when you sell your home for less than you owe on the mortgage. The lender must approve the short sale and receive the sale proceeds. To get approved for a short sale, a borrower must demonstrate financial hardship, and the home must be worth less than the borrower’s outstanding mortgage balance.
A short sale may not rank high on the list of preferred options for homeowners because it leaves them without a home or proceeds from its sale, but it can release them from debt. While a borrower will avoid having a foreclosure on their credit history, a short sale will damage their credit score.
Beware Of Mortgage Scams
Before paying money to a company or individual that contacts you about a pending foreclosure, confirm that they’re legitimate. Here are some concerning signs to watch for when working with a company or individual on a foreclosure:
They guarantee they can stop the foreclosure or get you a loan modification.
They urge you to stop talking to or paying your mortgage company and pay money directly to them.
They pressure you to sign over your deed or sign paperwork you don’t understand.
They claim to offer official or government-approved loan modifications.
They request confidential information, such as your Social Security number or mortgage loan number, to “verify” your account.
They recommend an expensive forensic loan audit to identify possible lender violations.
They claim to be an attorney and guarantee they can stop the foreclosure.
Never hand over money or sensitive information until you can confirm the legitimacy of the person you’re speaking to and their claims Your lender or loan service would prefer to keep you in your home rather than go through the time and expense of foreclosure.
Where can I find help if I’m facing a foreclosure proceeding?
You can start by visiting the U.S. Department of Housing and Urban Development (HUD) website to explore government-approved resources and counseling.
The Key Takeaway…
Work With Your Lender to Avoid Foreclosure!
Protect your home by staying ahead of financial difficulties and communicate at the early stages of trouble.
We hope that this information has been helpful to you and are always happy to have a conversation to answer any questions or point you in a direction of any resources or knowledge that we may have.
Sierra Haskins
530-632-9028
The NorCal Life Real Estate Group
eXp Realty / Lic 02146483
