How Not to Lose Your House: A Guide to Foreclosure and Alternatives

 What is Foreclosure?

 

If you default on your mortgage payments, your lender may take possession of your house. Foreclosure is the legal process by which a mortgage provider claims ownership of your property. On foreclosure, the lender sells the house to recover any outstanding debt. How the process is managed--whether the process is judicial or non-judicial--varies from state to state.

 

In states with a judicial foreclosure process, the lender and borrower must go through the courts and a judge will make a final decision. This gives you the opportunity to fight your corner, defend your case, and save your home by obtaining a judgment in your favor. In states with a non-judicial foreclosure process, the rights of the lender to reclaim your property are based on clauses in the mortgage agreement and deeds.

 

The prospect of foreclosure is a worrying and unpleasant experience. But there are several strategies you can take to stave off the worst outcome, avoid foreclosure, and save your home. You may no longer be able to pay your mortgage through no fault of your own--loss of income, an unexpected rise in expenditure, or losing other assets, for example--and most lenders will negotiate alternative arrangements with you.

 

If you think you may struggle to continue to pay your mortgage, don't ignore the problem. Talk to your lender as soon as possible. They may offer you a repayment holiday, a reduced interest rate, or a loan modification to help you stay in your home and pay fixed, reduced payments that you can afford.

 

What Happens During Foreclosure?

 

While the exact details vary from one state to another, the broad outlines of how foreclosure works are the same everywhere. Your first late mortgage payment will trigger the process. In most cases, your mortgage provider will have a built-in "grace period" for you to make the missing payment, usually a couple of weeks to a month. If you still can't pay, they may charge you added fees and the creditor may file a report with credit agencies.

 

If you don't catch up on your payments by the end of the grace period, they consider you to be "in default." At that point, if the mortgage agreement you signed has a "power of sale" clause built in, then the lender may repossess your house without a judicial process. In that case, you'll receive a Notice of Default through the mail. This is a legal document also filed with the state registrar. From that point, you'll have up to three months to either make the missing payments or come to alternative arrangements with your lender.

 

If there's no "power of sale" clause, then your mortgage provider will need to file a lawsuit. It's vital that you respond to any such suit. The lender may have to accept alternative arrangements if the court decides in your favor. If not, then you will lose your house. You can continue to live in your house until it's sold. If within that time you pay the arrears, then you can stop the foreclosure process. So, even at this late stage, it's always worth talking to your provider if you haven't already.

 

The last step is the sale of the house. Once the property has been sold, you must move out. If the property sells for more than you owe, you can keep the difference. If it sells for less, you may be charged to cover the deficit.

 

You are still responsible for property taxes on your home until the sale goes through. If you default on the taxes, too, then the government may take possession of your house.

 

How to Avoid Foreclosure

 

Until they sell your house, you still have the chance to avoid foreclosure. The most important thing to remember is not to run away from the problem. Talk to your mortgage provider as soon as possible if you find yourself facing financial difficulty. Most lenders are aware of these problems and have systems in place to help you. Here are six ways you might save your house:

 

1. Liquidate other assets to reinstate your loan

 

If you have other property, shares, bonds, savings, or assets which you could turn into hard cash by selling them, and the funds raised are enough, you could pay off all your outstanding debts, charges, and taxes and reinstate your mortgage agreement with your lender.

 

2. Negotiate a repayment recovery plan

 

If you've missed only one or two payments and still have a stable income, you may negotiate an arrangement with your lender. This will last for several months and spread the cost of missed payments over time, so that it will slightly increase your payments until the balance is met. After that, you will return to your original payment plan.

 

3. Negotiate a forbearance period

 

If you've defaulted because of loss of income because you've been made redundant from work or suffered a temporary illness, your lender might offer you a forbearance agreement. This is a period, up to six months, during which you don't need to pay, or you pay a reduced rate, while you recover or find a new job. If you become solvent again within the time limit, you pick up your mortgage where you left off.

 

4. Negotiate a modified loan

 

Your lender may modify your mortgage. They could offer you a reduced interest rate, spread the balance of missed payments, or extend the duration of the mortgage to lower the monthly cost.

 

5. File for Chapter 13 bankruptcy

 

Filing for bankruptcy is a big step, but it could save your house under some circumstances. If your only debt is on your mortgage, it's not a good idea. But if you have other debts--credit and store cards, unsecured loans, and hire purchase agreements--and you're struggling financially, it might be worth a shot to give you a clean break. But remember, it's a serious step with long-term consequences, including limited access to banking services, and no possibility of further credit for many years.

 

6. Sell the house yourself

 

If you can sell the house yourself and settle your mortgage with the money from the sale, you won't save your home, but you will save your credit score and your good financial standing. It's an option worth considering if remaining creditworthy is more important to you than holding on to your house.

 

If you need a law firm to handle all of your foreclosure needs, Saunders & Associates, APC, is the firm for you. We represent clients throughout California. Our clients’ are our focus. We are committed to leveraging our combined knowledge and experience to exceed our clients’ expectations. Let us help you every step of the way. If you are wondering what makes Saunders & Associates different. The answer is YOU. Saunders & Associates, APC is an excellent partner and guiding light for you, your business and legal needs.