Getting that foreclosure notice of default will induce anxiety, shame, and fear of losing your home. But in case you do receive this letter, you should know that there are probably resources and time left for you to fix this. The notice of default is the first step in the foreclosure process, and if you make the right moves, you can prevent getting the notice of sale.
Bear in mind that if you are behind on your mortgage payment, you are one of 13 million Americans who struggle economically, especially during the pandemic. This can happen to anybody, due to sudden job loss or unforeseen medical spending. So do not dwell on it, but rather get proactive and solve this issue.
A mortgage can be considered delinquent if you are not current on your loan, but the lenders usually give you 120 days until they send out a notice of default. After that homeowners usually have 90 more days before their house gets put on an auction. To establish the timeframe, you have more than 6 months to make a plan and get back on track from the moment you realize you are having financial problems. Firstly, you should do your homework about the 80-10-10 piggyback mortgage loans in California or other mortgage solutions before you make your final decision.
Context
- 7 Ways to Avoid Foreclosure
- The Last Resort
- Pick Your Financial Advisor Wisely
- Negotiate and Communicate with Your Mortgage Lender
- Reinstate Your Mortgage
- Loan Modification
- Refinancing
- Check Your Escrows
- The Statistics Are in Your Favour
- Conclusion
7 Ways to Avoid Foreclosure
The Last Resort
The notice of default is a public document that allows certain groups of people access to your contact information and address, and some of those people do not have their best interest in mind. Don’t be surprised if after you get your notice, you start getting emails and letters from companies offering to help you end the foreclosure.
Do not fall for that, and do not take their advice on filing for bankruptcy, let it be your last resort. Doing this can hurt your credit score more than a foreclosure could. Even the option of selling the house should come before bankruptcy.
You can consider moving to a neighborhood or a town with a more favorable housing market. For example, if you were to sell your house in Ventura County and move to Riverside, you would have around $200,000 to spare.
Your main goal should be to keep your house without an extreme reduction of credit score points. Maneuvering a tough financial situation requires making informed decisions and knowing where to ask for help.
Pick Your Financial Advisor Wisely
Contact your local non-profit service and find a free financial advisor that helped more people from your community. There are even federal programs that provide help for homeowners threatened by foreclosure. Wealth managers should be your first phone call when you get behind on a mortgage payment.
It is possible to find a good advisor that does not charge fees because many financial experts have been offering their services since the start of the pandemic. A financial advisor can look into your record, including profit, spending, taxes, etc., and help you relocate assets or change your malfunctioning budgeting.
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Negotiate and Communicate with Your Mortgage Lender
Foreclosure is a lose-lose situation - lenders are not earning money in the process and with that in mind, you should not avoid them. They are not out to get you, and in most cases, they will meet you halfway.
Communicating with your lender when you hit a rough patch with money can save you both trouble. They will give you a multitude of options that vary depending on the type of your loan and negotiate a deal to prevent auctioning off your house.
Depending on your current and future income, you can negotiate a new payment plan and pay your debt in installments added to your monthly payment. This is the best option for you if you had lost your job, but have just got back to the job market.
With the help of your financial adviser, your negotiations with the lender could be quick and easy, as they are also trying to avoid the foreclosure process.
Reinstate Your Mortgage
Restoring your mortgage after the default means that you are paying a total amount past due. You can reinstate the loan even if you are a month behind. In fact, it is best to do it as soon as possible, so you don’t have to pay forbearance fees.
Reinstating the mortgage stops the foreclosure process if it is not yet finalized, but you will need to pay all the fees connected to it, such as attorney and inspection fees.
The process of restoring your loan is not the same as the loan payoff. The latter means getting rid of your mortgage altogether, while reinstatement allows you to pay only the monthly payments that you owe.
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Loan Modification
Negotiating with your lender could result in a loan modification to your advantage. You can prolong the loan, giving yourself more time to repay it in smaller installments. If the interest rates are lower than when you signed on a loan, try and modify your loan to the current rates.
The less likely modification that lenders allow only in exceptional circumstances is principal forbearance. You have to try all other options offered to you by your lender to begin proposing forgiveness of the loan portion.
A loan modification will work best for you if you are in a situation where you owe more than the worth of your property. Note that the lender is not in any way required to accept your request for modification.
Refinancing
Instead of modifying your existing loan, you can opt for refinancing the mortgage, meaning you can replace your loan with a new one. This also enables you to shorten your term and take the current interest rate, but without the required lender’s approval. You can change the lender if you're not satisfied with them.
However, you will need to go through a process similar to the one of buying a house. In addition, refinancing is less cost-effective if you are in financial distress, as you would have to pay thousands of dollars worth of fees.
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Check Your Escrows
Talking to a financial advisor could help relieve your situation while looking into your escrow arrangement. This arrangement is made between a buyer and seller or a borrower and a lender. The two parties agree to establish an account held by a third party until certain conditions are met.
An escrow account made for mortgage-payment purposes between you and your lender will exist until the end of the term. However, many people pay other bills besides their monthly mortgage payments. Working on reducing items that you pay together with the loan installment could help you ease that pressure.
The Statistics Are in Your Favour
In 2021 the foreclosure activity in the States dropped to an all-time low record, probably due to COVID 19 induced mortgage forbearance and foreclosure moratoriums. Although there is a rise in filings after the end of the moratorium, bank repossessions are still down by more than 90% in comparison to their peak in 2010.
Experts say that the homeowners are protected from unnecessary foreclosures due to both government and mortgage services. The increase in defaults is expected, but it should be very moderate, as the national economy is recovering and the job market is straightening.
Conclusion
If you find yourself in money trouble, don’t feel ashamed, but rather take control of the situation. Find help and don’t ignore the things that might come back to haunt you. You have enough time and options to get right back on track to a secure home.