Even when we think that we’ve got it all together, life can still hit us with a multitude of complications and unexpected situations. You have a beautiful house and you are living a happy life, but all of a sudden – the company that you work for declares bankruptcy. You are out of a job and your partner’s paycheck can’t cover the mortgage.
What happens now? Lucky for you, there are multiple ways to “get out” of foreclosure. If questions such as “Can I sell my house if it is in foreclosure?” have been going through your mind, look no further! Here, we are going to go over strategies on saving your house from foreclosing, as well as answer any questions that you might have about this process.
What Does Foreclosure Mean?
In order to fully understand what the solutions to your problem can be, we first need to go over what foreclosing entails. Foreclosure is defined as the legal processes or actions taken as a consequence of the mortgagor failing to make mortgage payments. These legal processes and actions usually mean selling the mortgaged property as collateral.
In simpler terms, if you are unable to pay for the mortgage that you took out on a property and you enter foreclosure – you are at high risk to lose your house, and most often other possessions that you own.
To illustrate, let’s say you live in LA. You found a professional Los Angeles mortgage broker that connected you with a bank that issued a 20 year loan. After ten years, you stopped making your monthly installments – the bank could initiate foreclosure proceedings to auction your house in order to get their money bank.
Judicial Foreclosure vs. Non-Judicial Foreclosure
When we see the word “judicial”, you already know that it has something to do with the court and/or with the government. In case of a foreclosure, a judicial foreclosure means that this process will happen through the court system. The bank files a lawsuit to get the process of foreclosing your property started.
Once this is done, the process is executed in agreement with the jurisdiction in which the property is located. Or, in other words, in accordance with the state law. Even though most states in America require you to go through a judicial foreclosure, there are some states where you can go through a non-judicial foreclosure.
Non-judicial foreclosure happens when this process is done without getting the court involved. States that allow non-judicial foreclosures are: Texas, Colorado, Washington, Tennessee, Arkansas, Arizona, Georgia, Nevada, Montana, Alabama, Michigan, North Carolina, Wyoming, Idaho, Alaska, California, Maryland, New Hampshire, Oregon, Rhode Island, and Virginia, to name a few.
However, even if you and your property is in a state of the United States where you can have a non-judicial foreclosure, this doesn’t mean that a judicial foreclosure can’t happen. Banks can still request a judicial foreclosure for whatever reason they deem necessary. A flaw in the mortgage can be enough reason for this.
Strategies to Save You from Foreclosing
First and foremost, even if you are not a lawyer or know nothing regarding laws about real estate, mortgages, and foreclosure – you need to know about your rights and you need to learn about the law that is applicable to you in this kind of situation. Why? Well, because of a multitude of foreclosure scams and knowing your rights can always come in handy.
Since there are many different varieties when it comes to these “rescuer” scams (as they are often called), we are going to quickly cover some of the most common foreclosure scams and red flags that you should look out for.
If the person 1. makes big promises and guarantees saving your home 2. wants you to sign sketchy/confusing papers 3. tells you to refrain from making mortgage payments 4. requires payments upfront… You are most likely dealing with a scammer. They find their victims by going through public records for foreclosure filings and their own scammy connections.
Keeping all of this in mind, talking to a foreclosure lawyer definitely isn’t a bad idea. It’s actually highly recommended if you are in a situation like this. To emphasize – knowing about the law in your state and what your rights are can potentially get you out of a foreclosure situation, or at least make the process a bit easier. This is strategy number one.
Reducing Interest and Restructuring Your Loan
One of the worst things that you can do is just sit there and hope that it all goes away. Spoiler alert: it won’t. If you contact your lenders, there is a high chance that they will meet you halfway and figure out a plan with you so that you don’t enter foreclosure. In some cases, you may even get suspended or reduced payments for the time being.
Reinstate your loan
Reinstating your loan means making all the payments that you missed, along with the extra fees, interest, and other expenses. Of course, this is only an option if you have the money that is needed on hand. If you have a wealthy family member or friend who understands your situation and is willing to help out, you should at least give it a try.
Another option here is selling or pawning any possession of greater monetary value, if possible.
Selling Your Home
Sometimes, it’s easier and a bit less stressful to just sell your home instead of going through all the steps of trying to save the home from getting foreclosed on. In this case, you have two options: arranging a short sale or a deed in lieu of foreclosing. In both cases, your lender needs to be aware of this and needs to agree with your actions.
A short sale means that your lender gives you permission to sell the property for less than the loan amount. In this case, they take the proceeds and forgive the remaining debt, if any. Hiring a real estate agent that has experience with short sales is highly recommended so you can save yourself from any added headaches.
A deed in lieu of foreclosing means that you and your lender come into agreeance that you cannot make the necessary payments. In simple English, with a deed-in-lieu, you will “hand over” the property in order to avoid foreclosure proceedings. This is also the last resort option since you will in a way avoid foreclosure, but you will lose your home.
Before you do this, make sure that you ask about the deficiency. In this case, deficiency is the difference between the value of your property and the amount that you will owe on the mortgage.
Declaring Bankruptcy
This should not be your first option when you are in danger of being foreclosed on. This is the option you should go to when you have run out of all other options. Here, strategy number one comes in handy again. Since if you need to file for bankruptcy, yet want to keep your home, you may want to file for a Chapter 13 bankruptcy.
You will most likely get a slight delay (usually a couple of months) if you do this. However, filing for bankruptcy in order to delay the foreclosure isn’t an ideal option. A Chapter 7 bankruptcy can also be an option for you and your situation. However, equity plays a huge role here.
As a final word of advice when it comes to declaring bankruptcy – it’s preferable that you talk to a bankruptcy lawyer. They will be able to tell you if a Chapter 7 or a Chapter 13 bankruptcy is better for you in your particular situation.
Avoiding Foreclosure: the Takeaway
Being in a situation where getting foreclosed on is possible is scary and definitely anxiety-inducing. However, the world will not stop spinning. You have options and strategies that you can follow and avoid getting foreclosed on altogether. Well, as long as you don’t trust a person or company that is offering to be your “savior”.
One of the most important tactics to avoid foreclosure is to be open and upfront with your lender. If you ignore the emails and messages that are coming in and your lender has no clue about what is happening with your life or work – chances are that you will get foreclosed on.
See which option is the best and most realistic for your current financial situation, do a little research when it comes to the law in your state of residence regarding foreclosure, and ideally – talk to an expert. Financial setbacks, sadly, are a normal part of our life. Solutions exist, and there are plenty of people who have managed to save their homes from getting foreclosed on using these methods.