Bank foreclosures of homes are at an all-time high and industry experts indicate the number will be going even higher.
What is Foreclosure?
First, you should understand exactly what foreclosure entails. In simplistic terms, the process involves the loan amount secured through a bank or secured creditor. Foreclosure proceedings by the lender against the borrower are triggered when the homeowner violates the loan agreement, typically by defaulting on payments. The foreclosure action terminates with the eviction of the defaulting homeowner. The lender then takes possession of the property and in turn sells the property to pay the mortgage amount in full and cover any legal expenses incurred.
Sometimes missing a single payment can put you at risk of foreclosure. Examine your finances to see if there are any red flags pointing to your inability to make future payments to your lending institution. A change in your financial situation due to a job layoff, mortgage payment adjustment, change in marital status or unexpected medical expenses could negatively affect your ability to stay current or miss payments.
Other warning signs of foreclosure risk include: large sums of credit card debt, using your credit card to purchase daily necessities such as basic food items and the inability to pay other bills in a timely manner.
Don’t Be Complacent
Don’t let anyone tell you have plenty of time before the bank takes action against you. Counting on another foreclosure freeze or a government rescue plan is a risky strategy at best. Thinking “it can’t happen to me” is being like the proverbial ostrich burying its head in the sand.
Once a payment is missed, the foreclosure wheels start turning. Your bank or lender will likely contact you by phone or post. Miss another monthly payment and calls from your lender will escalate. At this point, they want an explanation as to why the payments have not been received.
After the third delinquent payment, the bank will send a letter stating past due amount and the stipulation that you have 30 days to pay in order to bring the account current. If you do not respond by the date mentioned in the “Demand Letter” or “Notice to Accelerate”, the lender could begin foreclosure proceedings and at this point you will probably be dealing with the lender’s attorneys.
The attorney will schedule a Public Trustee’s or Sheriff’s Sale. You will be notified of the date by mail or the notice may simply be posted on your home’s front door. The date of the sale will also be published in the local newspaper. This represents the official date of foreclosure.
Following the sale, you will have entered into the redemption stage in which you can still make an effort to recover your home. To do so, you must pay the entire outstanding balance and any additional expenses incurred during the foreclosure proceedings.
This timeline varies from state to state and is dependent on whether the foreclosure is a judicial or non-judicial. Judicial foreclosures are associated with mortgages versus deeds of trust and typically take longer to complete than the example cited above.
Procrastination only makes matters worse. Ignoring the obvious makes reinstating your loan much more difficult and increases the odds that you will eventually lose your property.
At the first sign of a problem, contact a government approved housing counselor for mortgage, legal and financial advice. These services are relatively inexpensive and a counselor may even be able to assist in negotiations with your lender.
The best thing you can do is to keep the lines of communication open with your bank. Take the first step and call your lender when you know you have a problem meeting your loan obligations. Believe it or not, your bank would rather not have to repossess your house.
Respond to all correspondence and calls from your bank. A lender tends to look more favorably upon the borrower who attempts to rectify the situation. In addition, these letters and calls may provide valuable information about the bank’s foreclosure prevention options.
Locate your loan documents and read them thoroughly to find out what action your bank can take if you fail to make payments. Research the laws and become familiar with the foreclosure timeline for your specific state if you think you may be at risk. Each state varies in the manner and speed in which the foreclosure process is handled.
Several common-sense steps can actually help you recover from your dilemma. By no means pleasant, certain financial sacrifices might just turn things around enough to avoid a foreclosure filing.
Prioritize your major expenses. Health insurance and house payments are priority number one. Determine the areas where spending can be cut or reduced to facilitate making your house payments. Things like health club memberships, movies, dining out and even cable TV are expendable for the time being. Refrain from using credit cards. Contact your credit card companies and explain your current financial situation. Often they will work with you to postpone scheduled payments for several months.
Tally up your assets. Consider selling non-essential vehicles, jewelry, appliances and furniture to generate enough cash to bring your mortgage current. Taking a second job will also bring in extra cash. Even if you cannot raise enough to make a payment, you will at least be proving to your lender that you are serious about keeping your home.
Beware of Scams
Unscrupulous entrepreneurs have created an entire cottage industry of foreclosure-related businesses. Even so-called legitimate companies often ask for a large upfront fee from distressed homeowners in return for foreclosure prevention assistance. Don’t spend your hard-earned money for help you can get for a nominal amount or free.
Foreclosure recovery services are quite different than foreclosure prevention companies. Foreclosure recovery scams advertise the fact they can stop foreclosures. Victims are required to assign rights over to the recovery company to act on their behalf. In many cases, unwitting homeowners actually sign over the title to their homes thinking they will at some point get it back.
Protect Your Credit
One of the main things to keep in mind is the long-term damage you can suffer by losing your home–it will take years to regain your credit standing. Think of the consequences when you try to finance a car, get auto insurance, rent an apartment or even pass a background check for a job.
No homeowner wants to be faced with the prospect of foreclosure. However, in today’s rocky economic climate, one must be prepared to face this unfortunate situation. Remember, preparation and advance planning are key to keeping your home. Although it may seem like the end of the world, you now are equipped with the knowledge and resources to help you weather this difficult time.