Do you want to know how to effectively stop foreclosures? To begin, in 2020 the methods are entirely different than what they were in 2010. For instance, now there is no tax forgiveness if the home goes back. Additionally, there is no longer protection for tenants. Finally, there are no requirements for mortgage companies to accept mortgage modification applications.
Even if you aren’t at risk of losing your home, perhaps it’s wise to think about what steps you need to take if this happens. So, if this is something you want to know, continue reading to learn how to effectively stop foreclosure in 2020.
How to Effectively Stop Foreclosure in 2020
For new homeowners, the process of buying a home is exciting and thrilling. So, you most likely don’t give much thought to problems that could potentially put your home at risk. Therefore, it’s advisable to have an expert by your side to guide you through buying a home. Please note that mortgage bankers have a higher standard than mortgage brokers. In fact, mortgage bankers make sure the home is affordable and reasonable for your income and expenses.
Avoiding foreclosures starts with preparation and financial planning. There are always unexpected circumstances that can put your home at risk. If this were to happen, it is essential to have a back-up plan and be well informed on how to effectively avoid foreclosure and keep your credit rating healthy.
In this article, we look at a few ways how to effectively stop foreclosure. A foreclosure normally starts when you become 60 days overdue. At that point, a bank refuses payments and sends the mortgage to their attorney. Before we start, let’s quickly recap what foreclosure actually means.
What You Should Know About Foreclosure
Foreclosure occurs when a lender or bank files a lawsuit to sell the home to pay off the mortgage. However, the mortgage company does not take ownership of your home just because of the lawsuit filing. Rather, you still own the home until the judge or a commissioner in Kentucky auctions the home. Then, the house is sold whether or not you make regular payments.
Foreclosure finishes with a foreclosure auction. Then, the lender may or may not take over the home. The lender in Kentucky will often bid up to 66% of the value of the house to stop you from later redeeming the home. In a foreclosure auction, the judge or commissioner sells the home to the highest bidder. However, although the judge is supposed to only approve a reasonable sale I have seen a $50,000 home sold for a $1,000 bid at a tax sale.
You have options even before a foreclosure lawsuit is filed. But, these options slip away because you only have 20 days to answer a lawsuit. Also, after a foreclosure auction advertises it is difficult or impossible to stop the sale without filing bankruptcy. What’s more, the closer the auction date is, the harder it is to stop the process and the fewer options you have.
There are a few things to do in advance that might stop foreclosure almost immediately. Let’s take a look!
What You Can Do to Stop Foreclosure
It is up to you to decide which method best suits your situation and your individual needs. As an example, a house might be perfect for you, and you might want to keep it. In that case, selling the home or a deed in lieu are not options. To keep a home you may need to file a Chapter 13 and catch up payments. However, you must consider Chapter 13 early in your case. Unfortunately, delaying the filing of Chapter 13 increases the payments dramatically. In fact, later you may no longer be able to afford it. In addition, you not only have to pay your late payments but also the mortgage company’s attorney fees along with your own fees. So, sometimes, you may save a home by doing a mortgage modification or workout agreement.
It is best to work with a foreclosure expert to make sure you understand the benefits and drawbacks of each approach. In cases where you want to delay the foreclosure to find another place to live you may need a foreclosure defense lawyer to file an answer, discovery, and do medication which will delay the process. If you are not fully aware of the situation and your options, then you will make mistakes that will cost you. Also, there are also foreclosure scams you need to avoid.
The following are some of the ways to avoid the negative consequences of foreclosure this year.
Effectively Stop Foreclosure with a Deed in Lieu or Short Sale
A deed in lieu simply means that the lender agrees for you to assign the deed back them. A short sale also means the lender will accept less than what is owed but probably more than what the lender would get at auction from a buyer. In such circumstances, the sale is called a short sale. In most cases, the homeowner can negotiate with the lender to be free of his remaining debt once the house is sold to new buyers.
These are not normally your lender’s first preference for a number of reasons. A deed in lieu exposes your lender to a range of liability risks. In addition, they are forced to deal with second mortgages or additional lines of credit on the property.
Please note, a short sale or deed in lieu does not save your credit rating. Normally, it has a similar impact as a foreclosure. So how do you know if this option is the right one for avoiding foreclosure?
If your credit score is important to you and you plan to use it in the next couple of years to buy a new home, it may be better to sell the home. On the other hand, if you’re more interested in the end result of no foreclosure at all costs, a short sale or deed in lieu may be the way out. So, if you are not planning to buy a home anytime soon, this alternative might be the rescue. However, these options are only slightly better than a foreclosure.
Effectively Avoid Foreclosure with a Loan Modification or Workout Agreement
Getting a loan modification is available in some cases but there is no requirement to give you a modification or workout. Applying for a modification or workout involves filling out a financial package and submitting it for review and evaluation. By applying to get your loan modification, you are asking your lender to make changes to your current loan terms. If they agree, the interest rate might drop, or the payment might drop permanently or temporarily. But, with a workout agreement, the amount you are behind is deducted from your equity.
Based on the information and the result of the analysis, the lender makes a choice whether to agree to modify your loan. If they agree, you then receive a proposition for the new terms. Keep in mind depending on the situation, the new terms may mean higher monthly payments than previously. The interest rate may also increase, the length of the loan may increase or you may lose some equity.
It is essential to understand the sooner you contact your lender, the better chance you have of avoiding foreclosure. If possible, try to let them know your financial difficulty before you are late with payments. This way, you have a better chance of understanding and opportunity to reach a mutually beneficial agreement.
⎆ Special Loan Modification and Workout Problems
Remember, the lender is not obliged to agree to the proposition or to provide any program but most do. The bank has the right to say no to modification if your information shows you are financially unable to make payments on time.
So is this the right choice for you? Applying makes sense if you want to keep your home and can ensure that you will be able to make payments on time. Even with new terms that require higher payments, applying for a loan modification may be the way to go.
Even if you only want to delay the foreclosure process, applying for the loan modification delays a foreclosure. If you know however that you must keep the home and any modification would be on worse terms perhaps a Chapter 13 would be better. In Chapter 13 you only need to catch up the arrears. If it is impossible to pay for a home, maybe it is best to stay away from a loan modification.
How to Effectively Stop Foreclosure by Selling Your Home
You can sell your home anytime before the auction. You might even look for cash house buying companies and private investors. But they offer much less than you get from listing the home with a realtor. Also, some of these companies or investors are scams that steal homes.
Therefore, if you want to sell the home, work with a real estate agent who understands these deals. The thing is, the home needs to sell quickly before it is auctioned. There are also issues with homes in pre-foreclosure that a broker with experience can handle. A real estate broker with experience takes a special role in managing the process and taking away debt from homeowners.
The sale price may or may not be lower than the regular price. To set the price effectively depends on how quickly you need to sell the home. An investor wants to resell the property for a higher price afterward and make a profit. This is the motivation behind the investors who swarm over properties as soon as the foreclosure files.
⎆ Special Chapter 13 and Short Sale Issues
It is important to mention that there are specific criteria to cover in order for the bank to agree to a short sale. First, the homeowner must be a minimum of 30 to 60 days late with their mortgage payments and the home value should be less than the value of your mortgage balance. It often takes an extended time for a short sale to be approved and the bank will closely look over any purchase from a family member.
How Will You Know What Option is Right for You?
If you have hopes of keeping your home in the process of avoiding foreclosure, a short sale is normally not the right choice. Sometimes you may sell a home to a family member and later repurchase the home after the financial problem is gone. Additionally, by waiting too long to file a Chapter 13 it sometimes becomes unaffordable. You have to make a plan with an expert who knows what he is doing and live by it early in the process or you are lost.
If you want to be free from the property or foreclosure litigation a short sale may be best. If you can’t afford a Chapter 13 or if your loan modification is not approved, a short sale could be the right choice.
Additionally, partnering and planning with a foreclosure attorney with experience increase your chances of stopping a foreclosure. An expert is able to not only save you time and money but also ensures the end result is more satisfying for you.
It is our hope that the above-outlined methods on how to effectively stop foreclosure in 2020 will help you enter the process feeling prepared and well-informed.
Resources for Foreclosures
Where to Report Foreclosure Scams
Federal Trade Commission (FTC) for foreclosure scams.
Trustee Regions and Offices for foreclosure scams that involve bankruptcy
Other Related Information
If you need help with your foreclosure, contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905