Have you ever wondered how to effectively stop foreclosures? In 2020 the methods are entirely different than what they were in 2010. There is no tax forgiveness if the home goes back. Tenants are no longer protected. Mortgage companies are not required to accept mortgage modification applications. Even if you aren’t at risk of losing your home, you’ve probably thought about it and what steps you would take.
For new homeowners, the process of buying a home is exciting and thrilling. You don’t think about problems which could put your home at risk. This is why it is advisable to have an expert by your side that can guide you through buying a home. Mortgage bankers have a higher standard than mortgage brokers. 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 will refuse payments and send 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. The mortgage company does not take ownership of your home just because the lawsuit was filed. You still own the home until the judge or a commissioner in Kentucky auctions the home. The house will be sold whether or not you are able to make regular payments.
Foreclosure finishes with a foreclosure auction. 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. 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 over time. You only have 20 days to answer a lawsuit. After a foreclosure auction is advertised it is difficult or impossible to stop the sale without filing bankruptcy. The closer the auction date is, the harder it will be to stop the process and the fewer options you have.
There are a few things that you could do in advance that can 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 would best suit your situation and your individual needs. A house may be perfect, you may need 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. Consider Chapter 13 early in your case. If you delay filing a Chapter 13 the payments increase dramatically and later you may no longer be able to afford it. You not only have to pay your late payments but also the mortgage company’s attorney fees and your own. 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 you make mistakes which will cost you. There are also foreclosure scams you need to avoid. Here are some of the ways to avoid the negative consequences of foreclosure this year.
How to effectively stop foreclosure with a deed in lieu or short sale
A deed in lieu simply means that the lender agrees for you to transfer assign the deed back them. A short sale 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 will be forced to deal with second mortgages or additional lines of credit the property may have accumulated.
A short sale or deed in lieu does not save your credit rating. Normally it has a similar impact to 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 if you can afford it. On the other hand, if you’re more interested in the end result of staying away from foreclosure at all cost, a short sale or deed in lieu may be the way out. If you are not planning to buy a home anytime soon, this alternative may be the rescue. These options are slightly better than a foreclosure. But only slightly.
How to effectively avoid foreclosure by applying for 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. By applying to get your loan modified, you are asking your lender to make changes to your current loan terms. The interest rate may drop, or the payment may drop permanently or just temporarily. With a workout agreement, the amount you are behind may be deducted from your equity. Applying for a modification or workout involves filling out a financial package and submitting it for review and evaluation.
Based on the information and the result of the analysis, the lender makes a choice whether to agree to modify your loan. If this is the case, you will 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 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? If you are dedicated to doing everything it takes to keep your home and can ensure that you will be able to make payments on time applying makes sense. Even with new terms, requiring 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. There are cash house buying companies and private investors but they often offer much less than you get from listing the home with a realtor. Some of these companies or investors are scams that steal homes.
If you are looking to sell the home, work with a real estate agent who understands these deals. The home needs to sell quickly before the home is auctioned. There are also issues with homes in pre-foreclosure an experienced broker can handle. An experienced real estate broker takes a special role in managing the process and taking away the debt from homeowners.
The sale price may or may not be lower than the regular price. This depends on how quickly the home needs to sell. 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 a foreclosure is filed.
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. The homeowner must be a minimum of thirty to sixty 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. By waiting too long to file a Chapter 13 it may become 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 was not approved, a short sale could be the right choice.
Partnering and planning with an experienced foreclosure attorney increases your chances of stopping a foreclosure. An expert will be able to not only save you time and money but will ensure the end result is more satisfying for you and the cost of the compromise you will have to make will be lowered to a minimum.
We hope that the outlined methods on how to effectively stop foreclosure in 2020 will help you enter the process more prepared and well-informed.