How to Avoid Your Home Going Into Foreclosure
Home foreclosure happens when your lender takes possession of your property after you stop paying the mortgage. Common reasons for home foreclosure include job loss, taking on too much debt, not being able to pay for home maintenance and repairs, and health emergencies.
If you're having difficulty paying your mortgage, there are ways to prevent home foreclosure. Here's what you need to know.
Did you know? Foreclosure isn't inevitable. There are several ways to avoid it.
Understand how the federal CARES Act can help you
The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes several provisions for helping homeowners who are struggling economically due to the pandemic. One of these is mortgage forbearance, which allows you to postpone some or all of your monthly payments on federally backed mortgages. This provision is in effect for 360 days as of March 18, 2020. Contact your loan servicer to learn how to apply for a forbearance. You can find out who services your mortgage by searching the Mortgage Electronic Registration System.1
See if there are any state programs that can help you
In addition to the CARES Act, individual states are developing more extensive policies related to delaying — or even avoiding — foreclosure. Forbes is regularly updating a state-by-state list2 of additional protections for homeowners facing financial difficulties due to the pandemic.
Another state program that may be able to help is Hardest Hit Fund,3 which provides financial assistance to families facing housing issues in certain states. Available aid varies by state and may include:
- Help with making mortgage payments.
- Reduction of mortgage principle.
- Aid with transitioning into housing that's more affordable.
The Hardest Hit Fund page provides a list of all participating states,4 as well as links to state-specific information, and many states in the southeast are on the list.
What happens if the bank forecloses?
Foreclosure is a process with several stages. To most effectively avoid foreclosure, it's important to understand how the process works. Foreclosure processes vary between states, so the following is just a general guideline on how the process works:
- You get a Notice of Default (NOD) from your lender after you have stopped paying the mortgage, usually after three to six months of no payments. You are now in a reinstatement period, which means you can cancel the foreclosure if you pay what you owe.
- If you don't act after receiving the NOD, you'll receive a Notice of Sale (NOS) where a foreclosure sale date is set. This usually occurs within three months after you receive the NOD.
- The foreclosure sale occurs at the local courthouse steps on the sale date listed on the NOS. Anyone in the public can bid on the home.
- If the house doesn't sell, it goes to the lender and becomes Real Estate Owned (REO) property.
In some states, homeowners have a right of redemption,5 meaning they can buy back their foreclosed home after it sells. For example, homeowners in Tennessee have up to two years to buy back their foreclosed home, Alabama homeowners have one year, and Florida homeowners have until the county clerk records the transaction.
Three ways to avoid foreclosure
While you can stop foreclosure by paying the money you owe, you may not have enough cash on hand to do so. Here are some alternate strategies worth trying:
1. Negotiate a repayment plan
If you're having trouble making your mortgage payment because of a temporary financial setback, ask your lender about negotiating a repayment plan. This typically means that you spread the amount of your overdue payments over a certain number of months. In this case, you'll pay more than your regular mortgage payment each month until you're caught up, at which time you'll resume paying your regular mortgage.
2. Have a short sale
It's better to sell your home than to have your lender foreclose, even if you need to sell it for less than what you owe, which is called a “short sale." Your lender must first agree to a short sale though. The advantage of selling your home through a short sale versus a foreclosure is that a short sale isn't as devastating to your credit score.
3. Request government assistance
Government assistance is available to help homeowners keep their homes. Here are a few options:
- The Making Home Affordable program offers free counseling with a housing expert to help you develop a budget and to review the options available to you.
- The National Council of State Housing Agencies6 offers programs that can help you develop a plan to avoid foreclosure.
- If you have an FHA loan, you can work with HUD's National Servicing Center7 to help you avoid foreclosure.
Consequences of foreclosure
It's best to avoid foreclosure, not only because you lose your home, but also because the aftereffects can be financially detrimental for many years. Foreclosures show up on your credit report and lower your credit score, making it difficult to get credit for anything moving forward, including buying or renting another house. In addition, you might owe a deficiency balance on your foreclosed home, which is the remaining mortgage after your home sells (if it sells for less than what you owe).
If you have a mortgage loan with us and are worried about losing your home to foreclosure, call us at 1-800-803-0803. We're here to help.
Important Disclosure Information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.Diversification is no guarantee against market loss.
- Mortgage Electronic Registration Systems, Inc. (MERS), "ServicerID," accessed May 12, 2020 Back
- Kelly Anne Smith, "Mortgage Payments Interrupted By COVID-19? The Federal and State Response," Forbes, updated April 25, 2020, accessed May 3, 2020. Back
- U.S. Department of the Treasury, "Hardest Hit Fund: Program Purpose and Overview," updated April 6, 2020, accessed May 3, 2020. Back
- U.S. Department of the Treasury, "Hardest Hit Fund: Current Program Documents," updated April 23, 2020, accessed May 3, 2020. Back
- AllLaw, "The Right of Redemption," accessed May 3, 2020. Back
- https://www.ncsha.org/housing-help/, accessed May 3, 2020. Back
- HUD.gov, "National Servicing Center," accessed May 3, 2020. Back
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