HOME / Pre-Foreclosure
The pre-foreclosure stage is a critical time for homeowners facing the risk of losing their property. Understanding your options and taking proactive steps can make a significant difference in your financial future. The Foreclosure Relief Team is here to provide the guidance and support needed to navigate this challenging period and explore solutions that work for you every step of the way.
Description:
The foreclosure process begins when the homeowner misses one or more mortgage payments. After a certain period of missed payments (typically 90 days), the lender sends a notice of default, informing the homeowner of the missed payments and the risk of foreclosure if the debt is not settled.
Key Points:
Homeowners can still take action to remedy the situation by reinstating the loan (paying the overdue amount), negotiating a loan modification, or exploring refinancing.
Important Note:
Lenders are often reluctant to negotiate if the property has significant equity. They may prefer to proceed with foreclosure, expecting to recover the full value of the loan through the sale.
Description:
If the homeowner does not resolve the default, the lender files a Lis Pendens (or Notice of Default, depending on the state) with the county recorder’s office. This is the official start of the foreclosure process and serves as a public notice that the property is at risk of foreclosure.
Key Points:
Important Note:
Lenders may be less inclined to negotiate if the property has substantial equity, as they may see greater benefit in pursuing foreclosure.
Description:
In this stage, a final judgment of foreclosure is issued by the court, confirming the total amount owed by the homeowner. While the property is now at serious risk of being sold at auction, the homeowner still holds the title and can take last-minute actions to save the property.
Key Points:
Important Note:
Negotiating with the lender at this stage is challenging, especially if the property has significant equity, as lenders may prefer to proceed with the sale.
Description:
If the homeowner cannot resolve the situation during the pre-foreclosure stages, the property is scheduled for a foreclosure auction. At the auction, the property is sold to the highest bidder, or it reverts to the lender if no bids meet the minimum requirement, in order to satisfy the debt owed.
Key Points:
Important Note:
Lenders are generally focused on proceeding with the auction if they believe they can recover more than what is owed due to the property’s equity.
Description:
After the property is sold at auction, the former homeowner loses ownership. However, if the auction sale price exceeds the mortgage debt and associated costs, the former homeowner may be entitled to claim the surplus funds.
Key Points:
Description:
This solution involves settling the outstanding debt, whether it be a mortgage, association dues, or other obligations that have led to the foreclosure process. Homeowners can either bring the loan current through reinstatement or pay off the entire balance in full. Both options stop the foreclosure process immediately and allow the homeowner to retain ownership of the property.
Types:
Reinstatement
Paying back the total amount of missed payments, including any late fees and penalties, to bring the debt current. This option restores the loan or obligation to its original terms.
Paying Off the Entire Debt:
Settling the entire balance owed, which may include the principal, interest, fees, and any penalties. This option fully satisfies the debt and removes any liens on the property.
Key Points:
Pros:
Cons:
Important Note:
These options are typically feasible only if the homeowner has recently acquired a large sum of money, such as through savings, a loan, or financial assistance.
Description:
Negotiating with the lender involves working out a new agreement that makes the debt more manageable. This could involve setting up a payment agreement, modifying the loan terms, or arranging for a temporary pause in payments.
Types:
Payment Agreements:
Establish a new payment plan that allows the homeowner to catch up on missed payments over time, often by adding an extra amount to the regular payments.
Loan Modification:
Changing the terms of the existing mortgage or debt, such as lowering the interest rate, extending the loan term, or adding missed payments to the loan balance to reduce monthly payments.
Forbearance:
Temporarily reducing or pausing payments, giving the homeowner time to recover financially. The missed payments are typically due at the end of the forbearance period.
Deferments:
Delaying the payment of the missed payments by adding them to the end of the loan term. This option doesn’t reduce the total amount owed but provides immediate relief.
Key Points:
Pros:
Cons:
Important Note:
Homeowners should be aware that lenders may prefer to proceed with foreclosure if they believe they can recover more by selling the property, particularly when there is significant equity involved.
Description:
Refinancing involves taking out a new loan to pay off the existing mortgage or debt. This option allows the homeowner to satisfy the current loan and replace it with a new one. Due to the foreclosure status, refinancing typically requires the homeowner to have at least 50% equity in the home to mitigate the risk for the new lender.
Types:
HECM Loan (Reverse Mortgage):
Available for homeowners aged 62 and older, a Home Equity Conversion Mortgage (HECM) allows the homeowner to convert part of the home’s equity into cash. The loan does not require monthly mortgage payments, and the balance is due when the homeowner sells the home, moves out, or passes away.
Hard Equity Loans:
These are loans provided by private or hard equity lenders, typically for homeowners with at least 50% equity in their property. These loans are easier to qualify for but come with higher interest rates and fees to compensate for the increased risk.
Creative Financing:
This out-of-the-box approach involves leveraging personal connections or other assets to secure the necessary funds. The homeowner might involve family members, friends, or associates who can help with financing, or they might finance another property to generate the funds needed to pay off the debt on the foreclosure property. Creative financing can also include other non-conventional methods to secure the necessary funds.
Key Points:
Pros:
Cons:
Important Note:
Homeowners should be cautious when considering refinancing options during foreclosure, as the costs associated with hard equity loans and private lenders can be significant. Creative financing can be beneficial but may involve complexities that require careful consideration.
Description:
Selling the property before it goes to auction allows the homeowner to avoid foreclosure, protect their credit, and potentially keep some or all of the equity they’ve built up. If the property is sold at auction, the homeowner loses ownership and may still owe money if the auction bid does not cover the final judgment, resulting in a deficiency judgment. Selling the property on the homeowner’s own terms is often the best way to maximize profit and avoid these risks.
Types:
Regular Sale at Market Value:
This option involves selling the property at its current market value, typically through a real estate agent. It allows the homeowner to maximize their profit and sell on their own terms, providing the pride of ownership and the ability to control the sale process.
Short Sale:
If the homeowner owes more on the mortgage than the property’s current market value, a short sale may be negotiated with the lender. In a short sale, the lender agrees to accept less than the full amount owed, and the homeowner is protected against deficiency judgments, as the lender typically agrees not to pursue further debt collection once the property is sold.
Key Points:
Pros:
Cons:
Important Note:
Selling the property, whether at market value or through a short sale, is often the best choice when other solutions are not viable. It allows the homeowner to avoid the risks associated with foreclosure, such as a deficiency judgment and severe credit damage, and provides a way to move forward financially.
Description:
Filing for Chapter 13 bankruptcy can temporarily halt the foreclosure process and allow the homeowner to reorganize their debts under a court-approved repayment plan.
Key Points:
Pros:
Cons:
Important Note:
This option should be considered carefully, and homeowners should consult with a bankruptcy attorney. It is often a last resort when other options have been exhausted.
Description:
Avoiding communication with the lender, not opening foreclosure-related mail, and ignoring court notices do nothing to stop the foreclosure process. This typically accelerates the foreclosure timeline and reduces the homeowner’s options for a favorable outcome.
Description:
Sending partial payments to the lender, even if made consistently, usually does not stop the foreclosure. Lenders typically require the full amount due, including late fees and penalties, to reinstate the loan. Without a full reinstatement, the foreclosure process continues.
Description:
Attempting to refinance or sell the property without the help of professionals who understand the foreclosure process is often ineffective. Most traditional lenders are unwilling to offer refinancing once foreclosure proceedings have started, especially if the homeowner lacks sufficient equity or credit. Similarly, listing the property for sale by owner without proper marketing or pricing strategy usually fails to attract serious buyers quickly enough to prevent foreclosure.
Important Note:
While it is always recommended to hire an attorney when facing foreclosure to ensure your rights are protected, foreclosure defense typically serves as a means to gain time. Ultimately, the property owner must find a financial or real estate solution to resolve the situation.
Description:
Hiring an attorney for foreclosure defense can temporarily delay the foreclosure process and provide legal protection. However, it is important to understand that foreclosure defense alone does not eliminate the foreclosure. It often buys time but does not resolve the underlying financial issues. We always recommend that property owners seek legal counsel to ensure their rights are protected, but homeowners must ultimately find a financial or real estate solution to prevent losing the property.
Description:
Delaying the foreclosure process through various tactics may buy time, but it can also have serious consequences. As the process drags on, interest, fees, and legal costs continue to accumulate, eating away at the homeowner’s equity. The longer the pre-foreclosure process is prolonged, the less equity the homeowner may have left, reducing the financial benefit of selling the property or pursuing other solutions.
Example:
A property owner may hire a great legal team that successfully gains them two years’ worth of extensions on their foreclosure. However, during this time, interest, penalties, and legal fees spiral out of control, and the homeowner loses all potential equity in the property. In the end, the debt may far exceed the property’s value, leaving the homeowner with nothing.
Important Note:
These actions might provide temporary relief or a sense of control, but they typically do not address the foreclosure process directly and can lead to greater financial losses in the long run.
When you purchased your home and took out a mortgage, you agreed to a deal with your bank or lender. They gave you the financing upfront to pay for the home, and in return, you signed a contract agreeing to pay a specific amount each month for a set number of years. If you start falling behind on your payments, or stop making your mortgage payments completely, the bank or lender can foreclose on the property and sell it as a way to make back the funds that were lost. This happens because mortgage loans are secured by real estate, meaning your home is used as collateral. Since your home is the collateral, it can legally be seized by your lender when you fail to make payments. To understand foreclosure, it helps to keep in mind that the word “homeowner” in this case is actually a little misleading. “Borrower” is a more apt term. That’s what a mortgage, or deed of trust, is: a loan agreement for the purchase price of the home, minus the down payment. This document puts a lien on the purchased property, making the loan a “secured loan.”
In the United States, individual states follow either a judicial or nonjudicial foreclosure process, typically depending upon whether they are a mortgage state or deed of trust state. However, you may safely assume that all states allow some form of the judicial foreclosure process. We have highlighted below some important points to remember about each type of foreclosure. This is a general overview and in no way represents each process in its entirety. It is important to remember that neither judicial nor nonjudicial foreclosures are one-size-fits-all. Each state follows its own established foreclosure laws and procedures. Consult with a foreclosure specialist in your state to protect your rights during a foreclosure.
The lender seeks to foreclose by filing a civil lawsuit against the borrower and serving the borrower with a formal summons and foreclosure complaint. The foreclosure process is handled through the local court system. The court appoints a referee to conduct the foreclosure auction on the courthouse steps. The lender records a lis pendens with the county clerk where the property is located. This lis pendens becomes a lien on the property and gives notice of the pending foreclosure auction. The court grants a judgment permitting the lender to conduct the foreclosure auction.
The Notice of Foreclosure Sale (NFS), which announces the date, time, and place of the auction, is published and sometimes posted (depending on the locale) for a certain period of time prior to the auction. Generally, the borrower can stop the foreclosure by repaying what he owes up to the moment of sale. The process can take from four to eight months to complete if no one raises any legal objections to the foreclosure.
This is followed in deed of trust states. A deed of trust conveys an interest in real property to a third party (the trustee) to hold as security for repayment of a debt. The trustee has the authority to initiate foreclosure proceedings by virtue of a power of sale clause included in the mortgage or deed of trust. The trustee records a Notice of Default (NOD) with the county clerk where the property is located. This document gives notice of an impending foreclosure and grants the borrower a period of time in which to object to the lender’s claim or pay what he owes.
The borrower may not stop the foreclosure after the expiration of this time period. Following the expiration of a predetermined amount of time (which varies from state to state), the trustee records a Notice of Trustee’s Sale (NTS) with the county clerk. This notice establishes the date, time, and place of the foreclosure auction. It can take up to 12 months to complete a foreclosure, depending upon the state.
It all starts when the homeowner — the borrower — fails to make timely mortgage payments. Usually, it’s because they can’t, due to hardships such as unemployment, divorce, death, or medical challenges. If you’re in this tough situation, it’s essential that you talk to your lender as soon as possible. There are several options to help keep you in your home.
The foreclosure process costs the lender a lot of money, and they want to avoid it just as much as you do. Sometimes, a borrower may intentionally stop paying the mortgage because the property might be underwater (in other words, the amount of the mortgage exceeds the value of the home) or because he’s tired of managing the property.
Whatever the reason, the bottom line is that the borrower can’t or won’t meet the
terms of the loan.
After three to six months of missed mortgage payments, your lender will file a Notice of Default with the local recorder’s office. Your lender will also send one to you via certified mail, and depending on your state, might post the notice on your front door. This notice specifies how much you owe in order to bring your mortgage back into good standing.
A Notice of Default could show up on your credit report and affect your score. This can make it more challenging to obtain other types of credit or refinance your mortgage. This official notice is intended to make borrowers aware they are in danger of losing all rights to the property and may be evicted from the premises. In other words, they’re in danger of foreclosure.
A Notice of Default doesn’t equate to the lender immediately or automatically foreclosing on your home, and it doesn’t mean you don’t have options to prevent the foreclosure from happening. You can put a stop to the proceedings by getting current on your payments.
Preforeclosure is the time period between the Notice of Default and the auction or
sale of your home. During this time, if you can get your hands on the amount
specified in the Notice of Default, you’ll be able to stop the foreclosure process from
going any further. The exact amount of time you have depends on your state.
During preforeclosure, you might also have the option to sell your home and pay
back the money owed, in what is called a short sale.
If you don’t have the money to bring your mortgage into
good standing within the allotted time frame, your
lender will file a Notice of Sale, and your home will be placed up for auction at a specified time and location. How the Notice of Sale is published depends on your state. For example, in North Carolina, the notice must be published in a local newspaper and posted on the door of the local courthouse, while in California, it must be posted on the property as well as a public place in the county.
Because the Notice of Sale is public information and has been advertised, several buyers, including investors, might be interested in buying your home. Depending on laws in your state, you might have the ability to exercise right of redemption (meaning you can reclaim your home) up until the foreclosure sale, or even after.
Following the auction and sale of your home, you’ll generally have a few days to gather your belongings and
move to a new residence. If you do not voluntarily move out, law enforcement personnel are legally
allowed to remove you and your belongings from the premises.
If you’ve received a notice of default, don’t panic – as we mentioned before, you still
have a few options to avoid foreclosure. Let’s go over a few of those options now to
see what might be right for your situation.
I. Forbearance allows borrowers to pause mortgage payments for a limited time
while they rebuild savings, increase income or decrease debt after experiencing
financial difficulties.
II. Modifications allows borrowers to alter the original terms of the loan to make the
payment more affordable. Changes may include lowering the interest rate,
extending the repayment term, or reducing the principal balance. By modifying the
loan, the goal is to create a more manageable payment plan for the borrower,
helping them avoid foreclosure and stay in their home.
The payments aren’t erased, but there are plenty of options to resolve the
delinquency: repayment plans, loan modification, deferral, partial claims, etc.
A lower payment or a pause in your payment can give you the much-needed
time to recover financially and avoid a final foreclosure.
You can request a modification or forbearance directly from your lender
without the use of an attorney. (However, Attorneys are always recommended)
Usually very tedious work to get the banks to approve a forbearance or
modification. Be ready to supply lots of paperwork and spend long hours on the
phone following up with the lender for an answer.
Forbearances and Modifications are usually seen as temporary solutions and
not permanent solutions.
FORBEARANCES AND MODIFICATIONS ARE MORE LIKELY TO BE APPROVED BY
LENDERS WHEN PROPERTIES HAVE LITTLE OR NO EQUITY.
You may be able to get approved for a repayment plan to help make your loan
current again. Under these arrangements, borrowers will typically pay a specified
amount extra each month until the missed payment balance is satisfied, upon
which they’ll return to making regular mortgage payments like before.
A repayment plan temporarily stops the pre-foreclosure until you get current
on all back payments at which time the pre-foreclosure goes away, and your
regular payments resume.
In a repayment plan your monthly payments are usually higher than your
original mortgage payments.
Usually very tedious work to get the banks to approve a forbearance or
modification. Be ready to supply lots of paperwork and spend long hours on the
phone following up with the lender for an answer.
LIKE FORBEARANCES AND MODIFICATIONS, REPAYMENT PLANS ARE MORE LIKELY
TO BE APPROVED BY LENDERS WHEN PROPERTIES HAVE LITTLE OR NO EQUITY.
Similar to the repayment plan above, if your financial hardship has passed and you
have the means to repay your mortgage normally going forward, you can also ask
for mortgage reinstatement. Under mortgage reinstatement, you make a lumpsum payment for all of the payments you missed, and your mortgage will once
again be current.
Your pre-foreclosure stops, you get current, and your regular payments resume.
Reinstatement requires a large upfront lump-sum payment, which can be
difficult for many people to secure.
While this won’t typically be an option if you’ve already begun the foreclosure
process, refinancing can also be a solution. If you fear you’re headed toward
foreclosure, refinancing into a more affordable payment can help you avoid
defaulting on the loan. This can only really be done if you’ve yet to miss a payment,
so unfortunately this option isn’t feasible for everyone.
If you’re already in pre-foreclosure contact one of our Foreclosure Relief Team Loan
Originators and See what financing options may be available:
Private Lending.
Hard Equity Loans.
HECM Loans: (FHA Insured Reverse Mortgage Loans for Seniors)
Refinancing your existing loan stops your current pre-foreclosure and affords
you a fresh start with a new lender.
Avoiding Foreclosure: Refinancing during pre-foreclosure can provide
immediate relief and prevent foreclosure by consolidating debts or
restructuring payments, giving you more time to stabilize your financial
situation.
Refinancing a property in pre-foreclosure can be quite costly. Lenders who are
willing to take on this risk typically charge higher interest rates and substantial
closing costs to compensate for the increased risk.
Higher Risk of Rejection: Due to the increased risk associated with preforeclosure, lenders may be more cautious and less willing to approve the
refinance, potentially making it difficult to secure new financing.
FINDING A LENDER WILLING TO REFINANCE A LOAN THAT IS IN DEFAULT IS VERY
CHALLENGING, PARTICULARLY IN A MARKET WITH HIGH INTEREST RATES.
While this won’t typically be an option if you’ve already begun the foreclosure
process, refinancing can also be a solution. If you fear you’re headed toward
foreclosure, refinancing into a more affordable payment can help you avoid
defaulting on the loan. This can only really be done if you’ve yet to miss a payment,
so unfortunately this option isn’t feasible for everyone.
If you’re already in pre-foreclosure contact one of our Foreclosure Relief Team Loan
Originators and See what financing options may be available:
Private Lending.
Hard Equity Loans.
HECM Loans: (FHA Insured Reverse Mortgage Loans for Seniors)
Refinancing your existing loan stops your current pre-foreclosure and affords
you a fresh start with a new lender.
Avoiding Foreclosure: Refinancing during pre-foreclosure can provide
immediate relief and prevent foreclosure by consolidating debts or
restructuring payments, giving you more time to stabilize your financial
situation.
Refinancing a property in pre-foreclosure can be quite costly. Lenders who are
willing to take on this risk typically charge higher interest rates and substantial
closing costs to compensate for the increased risk.
Higher Risk of Rejection: Due to the increased risk associated with preforeclosure, lenders may be more cautious and less willing to approve the
refinance, potentially making it difficult to secure new financing.
FINDING A LENDER WILLING TO REFINANCE A LOAN THAT IS IN DEFAULT IS VERY
CHALLENGING, PARTICULARLY IN A MARKET WITH HIGH INTEREST RATES.
Selling a property during foreclosure can be a strategic move, particularly when
there is equity in the home. If the property holds equity, selling it allows you to pay
off the mortgage balance and avoid the severe repercussions of foreclosure, such
as significant credit damage and legal challenges. Additionally, by selling the
property, you can prevent a deficiency judgment, which occurs when the sale of
the property does not cover the full amount owed on the mortgage, and the lender
seeks to recover the remaining balance through legal action. This approach
enables you to realize the property’s value, recoup any equity, and maintain
financial stability. By opting to sell, you effectively manage the foreclosure situation
and protect your financial well-being, potentially using the proceeds to support
future financial goals or investments.
Avoiding Foreclosure Consequences and Deficiency Judgment which can lead
to employment garnishments.
Avoid a final foreclosure on your credit. (Lasts for 7 years on credit)
Realizing Equity: If the property has equity, selling it allows you to pay off the
mortgage and potentially retain funds for future financial needs or investments.
This can provide financial stability and a fresh start.
Emotional Stress: The process of selling a property under financial pressure can
be emotionally challenging and stressful.
Possible Lower Sale Price: The urgency of selling during foreclosure may force
you to accept a lower sale price than you might achieve in a more favorable
market condition. However, The Foreclosure Relief Team excels in securing fair
market value for properties in pre-foreclosure.
A short sale is when you sell your home for less than what you owe on the
mortgage. The lender has to approve this and will receive all the proceeds of the
sale. The borrower must be able to prove financial hardship and the home must be
worth less than the borrower owes on it for a short sale to be considered.
If you ever find yourself unable to keep up with mortgage payments, contact your lender immediately and inform them of your situation. Lenders will work with their borrowers and want to do everything they can to help give you options to stay in your home and take care of repayment. Foreclosure is an expensive process and foreclosure properties often sell for far less than what it would take to satisfy the lender’s loss on the loan. If you receive a notice of default—though preferably before—you should talk to your servicer and lender right away to discuss your options.
If you’re facing a judicial foreclosure, note that the US Department of Justice maintains a list of free or low-cost legal service providers. Despite the fact that judicial foreclosures are a public court proceeding, there won’t be an attorney assigned to help you. Depending on your situation, defending a foreclosure to keep your home isn’t always the best option. If you have a genuine defense, however, hiring a lawyer might be crucial. For those who choose to advocate for themselves, the National Consumer Law Center also offers advice on how best to proceed.
Facing foreclosure and the possibility of
being forced out of your home can be
extremely upsetting and can make
homeowners feel desperate. Be aware:
there are scammers out there that
attempt to frighten homeowners into
believing their home is being foreclosed
upon in order to steal money from them.
Before agreeing to anything or paying
any money to a party that attempts to
contact you about foreclosure, make
sure the request is legitimate. The
Consumer Financial Protection Bureau
offers resources to help you spot and
avoid foreclosure scams.
No one wants their home to be
foreclosed upon – and fortunately,
before you reach that point you have
many options to avoid the foreclosure
process. If you ever find yourself
struggling to make mortgage
payments, reach out to your lender
immediately to see what help they can
offer you. It benefits both lenders and
borrowers to avoid foreclosure, so never
be afraid to reach out. Early and
frequent communication is key.
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