Dealing With Foreclosure

The loss of a home due to foreclosure is something no owner wants to face.  Unfortunately, extenuating circumstances that lead to this situation can happen in anyone's life.  So whether you are facing foreclosure, or not, being educated about the process can only prove to be helpful.

What happens with foreclosure?
When you lose your ability to make ongoing mortgage payments, your lender can legally take ownership of your home.  You have to move out, and the lender can sell your property to cover the outstanding debt.  And even worse, in some states lenders can pursue a deficiency judgement if your home is worth less than the amount you still owe.  If that judgment is granted, you not only lose your home, you also end up paying the lender an additional amount of money.

What are types of foreclosure?
There are judicial and non-judicial foreclosures.  A judicial foreclosure involves a court action.  This can result when a mortgage or trust deed does not have a power of sale clause, or when either the lender or a trustee requests a court-supervised sale.  Non-judicial foreclosure can be completed outside the court system, however the lender is unable to get a deficiency judgment when taking this route.

What should you do if at risk for foreclosure?
Let your lender know as soon as you are in financial trouble and before you start missing payments.  If your payments are already in arrears and your lender has contacted you, don't avoid them.  Instead, contact their Loss Mitigation Department immediately.  Explain your situation and ask about alternatives.

What are some alternatives to foreclosure?
The answer depends on whether your problem is temporary or long-term.  When dealing with a situation where you can quickly get back on financial track, you might be able to work out one of the following:

Forebearance.  With this option, your payments are delayed for a short time with the agreement that you will make a future payment of the past-due amount for reinstatement.

Reinstatement.  If you know you when you will have the money to bring your account up-to-date, you could be allowed to make a lump-sum payment by that date.

Repayment plan.  If you have the ability to make your regular payments now, but your account is past due, your lender might agree to let you spread payment of the past-due amount over a short period of time.  You would add an extra amount to your regular payments until it's paid up.

Longer-term problems present different challenges and therefore have different potential solutions:

Mortgage modification.  Your lender might agree to roll the past-due amount into your loan so that you can repay it over a longer period of time.  This assumes that you can still afford your regular payments.  If you need to lower your payments, refinancing your loan for a longer term might be a possibility if you qualify.

Deed in lieu of foreclosure.  With this alternative, you voluntarily transfer ownership of your home to the lender, and they forgive the debt.  You still lose your home, but your credit rating is impacted less negatively than it would be by foreclosure.

Pre-foreclosure sale.  See if your lender will agree to delay foreclosure to give you a chance to sell your home. 

What else should you know?
Know that you don't have to be embarrassed by your situation, and don't let embarrassment slow your urgency in taking steps to avoid or stop the foreclosure process.   Also remember that whether you end up in foreclosure or just in arrears, your credit rating is impacted.  Look for a reputable nonprofit with a proven track record of consumer credit counseling to help you rebuild your credit.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.