When is it Too Late to Stop Foreclosure?

When is it Too Late to Stop Foreclosure?

Are you behind on your mortgage payments or taxes?

You’re not alone.

When you finally become a homeowner the last thing on your mind is the possibility of losing it, but with the rise in the cost of living more and more people are finding it difficult to pay for their mortgages and taxes.

Thankfully, there are options available to help you keep your home. However, these become fewer the closer you get to the foreclosure date so it’s important to act quickly.

If you find yourself part of foreclosure proceedings, take a deep breath and read our article about the steps you need to take to retain ownership of your property.

What is foreclosure?

There are two types of foreclosure that affect properties if you miss payments.

Mortgage foreclosure – if you have missed payments, a mortgage lender can list your property at an auction and sell it to recover the money that the mortgage company lent you. This process takes time, around six months on average from when you reported your first missed payment.

Tax lien foreclosure – this type of foreclosure is when you fail to pay the relevant property taxes. Your local government will take the required steps to collect the money you owe them, including auctioning your home or auctioning off the lien against your home. This means that the new buyer must pay the lien. The tax foreclosure process often takes years to complete, rather than months.

The mortgage foreclosure process: step by step

The foreclosure process can vary depending on the state you live in. Generally, the timeline will look like this:

30 days late: if you have one month of missed payments, your lender must contact you to discuss your options and legal rights.

45 days late: after 45 days you will receive written notification regarding your loss mitigation options.

60 days late: at this point you will have an additional 30 days to get professional advice from a housing counselor.

90 days late: this is the point where your lender will inform you of their intentions to start the foreclosure process.

120 days late: after 120 you will receive an official notice outlining the foreclosure process.

A foreclosure is either:

Judicial – your lender will file a lawsuit against you and the case will go through court.

Nonjudicial – the foreclosure process is settled out of court usually by paying off the mortgage balance, loan modification, redemption or reinstatement (more on this later).

Most foreclosure cases are settled out of court by following the 120-day process explained above.

When is it too late to stop foreclosure?

In short, once the foreclosure auction to sell your home starts you will be unable to stop it. On the positive side, this gives you plenty of time to act.

The auction will usually start at a price that equals the amount you owe your lender. This will include any back payments and legal fees.

Once your property is sold at auction, the mortgage company will start legal proceedings to take ownership of your home. This includes filing for eviction if you are still living at the property.

As the homeowner, your goal is to pay the money you owe before the auction takes place. Once you have cleared your debt, the foreclosure process will stop and your monthly mortgage payments will continue.

How can you stop a foreclosure?

If your house is in foreclosure proceedings, you’ll be relieved to know that there are options to help you return to your monthly repayment plan.

Try each of the suggestions below in order. It’s also worth checking if you’re entitled to financial support in your state to help you catch up with payments.

1.       Speak to your mortgage lender

As soon as you default on your mortgage by missing a payment, you should speak to your lender before doing anything else.

It’s possible that they can offer loan modifications such as a lower interest rate or moving any back payments to the end of your agreement. These modifications are known as loss mitigation options. Not every mortgage company will offer these but it’s worth asking before you consider an alternative route.

2.       Refinance your property

When you have equity in your home, it’s even more important to try to retain ownership. Refinancing could be an option if you start the process early enough.

In basic terms, refinancing is when you take out a new loan to pay off your original mortgage agreement. Most people will refinance their mortgage to take advantage of lower interest rates with longer-term agreements.

If you’ve already missed some of your mortgage payments, this will make it more difficult for you to get approved by new lenders. This is because it will go against your credit score and is another reason why you should act as soon as possible. Also, your new mortgage payments may not be lower than your original agreement, which means you are in the same financial position as before and may not be able to make the repayments.

Other reasons not to refinance your home include:

·       If you plan to move in the near future. You need to be able to reach the break-even point otherwise you won’t get back all of the money that you spent on your loan.

·       If the closing costs are unaffordable. Appraisals, origination fees and other costs are part of closing a loan. You could add these costs to your loan amount to avoid paying them upfront, however this will increase your monthly payments.

·       If you currently have a low fixed-term rate with your mortgage provider. If you refinance whilst you’re already on a good deal, you might not save that much, if anything at all.

 3.       Mortgage Modification

If you need to make your repayments more manageable, your lender may be able to adjust the terms of your agreement.

This is usually achieved by extending the term of your loan so you will pay more in interest over a longer time but have slightly lower monthly payments. Not everyone will get approved for a mortgage loan modification. These are typically only given to customers who have a strong credit history and can demonstrate that they can keep up with the new terms of the loan.

4.       Redemption

A mortgage redemption is when the borrower has sufficient funds to pay off the entire balance on a mortgage.

Not many people will have access to large amounts of money to pay off a mortgage, but this often happens after an inheritance payment or from selling other assets.

To do this, ask your lender to provide a redemption statement. This document will detail how much is left to pay on your mortgage and any other costs and fees. Be mindful that there may be an early repayment fee if you pay off your mortgage before the date agreed in your terms.

Once you have paid off your mortgage, the foreclosure process ends and you own 100% of your property.

5.       Reinstatement

A mortgage reinstatement happens when a borrower pays off the total overdue balance. This process is sometimes called a loan reinstatement and will prevent the foreclosure process from going ahead if the borrower clears outstanding debt within 120 days. The total amount you pay will include late fees and any other penalties on your mortgage.

Mortgage lenders will often send borrowers a reinstatement letter that details what funds are required, also referred to as a quote for mortgage reinstatement.

A mortgage reinstatement will let you clear debt and carry on with your normal mortgage payments, whereas a redemption will clear the total balance and require no future payments.

 6.       Sell your property

Selling your home may be the last thing you want to do, but it could be your only option.

In some cases, you don’t have to move out if you decide to sell your property. You can ask for a lease option agreement with the buyer where you stay in the home as a renter. However, this comes with its own downsides as it’s unlikely that you will be able to afford the rent if you couldn’t keep up with the mortgage payments.

Follow our top tips on how to sell your home quickly for the best price and stop the foreclosure process.

·       Tidy up areas such as your flowerbeds, driveway and entrance hall. First impressions really do count.

·       Add a welcoming touch such as fresh flowers or light a fire.

·       Declutter and clean thoroughly.

·       Add some more lighting and mirrors to make rooms appear bigger and lighter.

·       Fix noticeable things around the home such as a dripping tap or holes in the carpet.

Selling your home takes time, which isn’t always something you have with foreclosure. If you decide to sell your property, take action quickly to maximize your chances of selling it before it goes to auction.

7.       Declare yourself bankrupt

In theory, if you declare yourself bankrupt you will put a stop to the foreclosure process. Being bankrupt will allow you to stay in your home by negotiating a payment plan.

However, there are things to consider before going down the bankruptcy route.

·       Losing your assets. You could be forced to sell some of your belongings to try and pay off your debts. This doesn’t include essentials such as clothes and furniture.

·       If you own a business, there are rules that could impact its future such as hiring someone else to run it.

·       Bankruptcy is recorded on your credit file for up to seven years. This can affect your ability to get credit in the future.

·       Some debts such as student loans and child maintenance debts and court fines are not cleared when you file for bankruptcy.

·       Your bank accounts are frozen as soon as you declare bankruptcy, meaning you won’t be able to access any money that you have.

 8.       Use insurance

If you have income protection insurance or sickness insurance, these policies can pay your mortgage while you’re not earning due to an accident or long-term sickness. This stops foreclosure from happening in the first place.

Is it possible to recover from a foreclosure?

A foreclosure process will cause your credit score to take a hit, but it’s possible to recover from one. Want to know the best way to do this? Start taking steps straight away.

To prove that you can be a responsible borrower you will need to:

Identify the reason for the foreclosure – what caused you to miss your mortgage payment? It could be the loss of a job, a divorce or simply bad spending habits. Whatever the reason, it’s important to recognize where and how it happened so you can learn from your experience.

Ensure your bills are paid on time – this is one of the biggest factors that determine your credit score. Making paying your bills a top priority and your credit score will reflect this.

Get professional help – if you’re struggling financially, it’s extremely important that you seek help. Free advice on budgeting and paying down debt is easily accessible in America via credit counseling services.

Check your credit reports regularly – monitoring your credit can help you understand which factors are impacting your score and motivate you to stay on track with your efforts.

Be patient – rebuilding your credit score will take time after a foreclosure. Don’t expect results instantly but they will happen.

 Understanding the foreclosure process

It’s really important to understand the foreclosure process so you can take action to hold on to the ownership of your home.

There are several ways that you can stop a foreclosure sale, but you need to act fast to stop your property from being sold at auction.

The most important bit of information to take away is to always speak to your lender if you’re having problems paying your mortgage. Their capital is also at risk if you’re unable to meet the payment terms so it’s worth seeing if they can help you by offering a payment break or lower rate first.

For more advice on the financial impact of being a homeowner, visit the dedicated home ownership section on our blog.

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