Want to save your property from being possessed by the loan lender? Here are some tactics to avoid home foreclosure if you default on your mortgage loan.
You’ve made a massive investment to buy a home. Now, you’d naturally think, “It’s my property till the time I sell it.” But is that true? Or can someone possess your property without your consent? Yes, it can happen, and it’s called home foreclosure.
If know about the real estate industry, you’ll know what home foreclosure means. But for people new to property buying, let’s elaborate on the term home foreclosure.
When you buy a home on a mortgage loan, there are specific terms that are decided. You’re supposed to pay a percentage of the loan with interest. This is a monthly arrangement. What if you default on the payments? Which means you miss your payments.
In this scenario, the lender can take legal action after reclaiming the property. The only way to escape this situation is to catch up on your payment or come to an agreement with your lender.
Imagine yourself from enjoying a cup of warm coffee beside your fireplace to losing your house due to home foreclosure. You’d want to avoid that situation and we’ll tell you what you can do.
Here, we first talk about the home foreclosure auction after your property is possessed, and how you can avoid the risk of home foreclosure. In addition, we’ll also tell you what you can do if home foreclosure is only a matter of time for you.
Let’s Start
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When you default on your mortgage payments, the loan lender files a notice of default and repossesses the home. Once the property is foreclosed, it lands in a home foreclosure auction. Here’s what you’d want to know about a home foreclosure auction.
Generally, a home foreclosure auction takes place in a county courthouse, or any other public venue. The court assigns a trustee or auctioneer to lead the proceedings. Usually, it’s a representative of the lender. The initial bid is set by either the court or the lender.
Once there’s a winner of the home foreclosure auction, the bidder needs to deposit a payment, which is the percentage of the purchase price. This is also where the terms of payments and the timeframe are decided.
Buying from a home foreclosure auction can be different from buying a home through a conventional method. For starters, buying a home from an auction means you won’t likely be able to attend access the property for inspection.
This won’t give you a clear picture of the property’s condition and the repairs that the winning bidder needs to make. Besides, one of the reasons why the home foreclosed might be that the homeowner might not have been able to handle the maintenance cost.
Learn More: View All Foreclosures Available in Your City
In most states around the country, homeowners have a redemption period to reclaim their property after the home foreclose auction. If the homeowner fails to pay off the debt during this period, the winning bibber from the home foreclosure auction can claim property ownership.
If needed, they can also file for eviction.
We’ve discussed what happens after a home foreclosure. But that’s an unfavorable situation you’d not want to be in. Here are some ways to avoid the risk of home foreclosure and successfully retaining homeownership.
Perhaps the simplest yet complicated one having the lender on your side. Make them trust you that this financial problem is temporary and you’ll be able to resolve it soon. Once you’ve done that, your lender can change your mortgage payment plan to your advantage.
This might mean paying less monthly mortgage to the lender until your financial position has improved. You can successfully postpone the home foreclosure by creating an understanding with the lander.
Once your financial position is better, the lender may expect repayment of the mortgage difference in the form of lump-sum amounts or monthly installments.
Are you:
If so, a reverse mortgage can be a good idea to avoid home foreclosure. You can access the Home Equity Conversion Mortgage, Single Purpose Reverse Mortgage, or Proprietary Reverse Mortgage. This allows you to receive funds as a lump sum or fixed monthly payment. You can even access the line of credit.
Unlike other loans, where there’s a fixed period for loan repayment, a reverse mortgage loan is more flexible. Loan repayment is due when
Here are some ways how you can repay the loan
When you can’t pay off the entire mortgage loan and are on the verge of facing home foreclosure, you can get access to funds and reduced interest rates. This means the lender has reduced your mortgage loan and also made increased the repayment period.
All looks positive, right? Well, there’s a downside as well. Getting a short refinancing will show in your payment history as “not paying 100% debt.” That can cause your credit score to drop and ineligible for various perks that come with it.
Your repayment is all about developing an understanding with your lender. As mentioned earlier in altering the mortgage terms, the same is the case here.
If you’re behind the payment schedule and about to face home foreclosure, you can commit to a lump sum payment before a mutually-agreed date. You’ll have more time to save and pay a lump-sum amount.
Learn More: Estimate Your Monthly Mortgage Payment and Property Taxes
You may find yourself in a position of no return with your mortgage loan payment, and home foreclosure becomes a certainty. In that situation, instead of taking desperate actions, here are options for you.
If you see your finances dropping and your income stream declining, you can sell the pre-foreclosure property. This means you’ll have to sell it at a price lower than the mortgage loan you owe.
Remember, this is a limited-time offer. You can only avail if you’re a couple of months behind your mortgage payments.
If you don’t have an alternate resident here’s something you can do. Find an investor to buy your property. That investor can lease the home to you. Make sure the lease contract has the option to purchase which gives you the right to buy back your property when you can.
There’s a risk here as well. Once you’ve sold the property to an investor, they can sell the property to someone else, without your authorization. We recommend going for an investor whom you can trust.
What happens after home foreclosure? Yes, we’ve talked about the property going in the home closure auction, but what happens before that? It’s repossessed by the lender.
The question is, why wait for your property to be repossessed? You can willingly give the property back to the lender in exchange for your debt being waived off.
The reason why you’d want to go for this option is that your payment history will not show any debt. This means you’ll save your credit score from going down.
This solution is more like delaying the inevitable. Filing for bankruptcy gets you extra time to gather finances and make the payments. Once your bankruptcy is over, your lender may ask you to pay 100% of the pending payment.
Why can it get difficult? Well, it will be hard to get another loan, because your credit score will be negative. For people who go for this option usually end up in a dead-end situation.
Hard times don’t come knocking. As a homeowner, you need to be proactive about knowing if you’ll face a home foreclosure. When you think your income streams are drying up and your debts are mounting, you can take one of these approaches we’ve mentioned.
These can help you keep your house away from the home foreclosure auction.
If you’re looking for advice from experienced real estate agents, HAR is waiting to hear from you. We’ll help you stay away from foreclosure by providing effective advice that ensures you have a roof over your head.
Home foreclosure occurs when a homeowner defaults on their mortgage payments. When these payments are missed, the lender takes legal action to reclaim the property. The property is then typically sold through a home foreclosure auction to recover the debt owed.
In most states, there's a redemption period after a foreclosure auction during which the homeowner has the opportunity to pay off the debt and reclaim their property. However, if the debt remains unpaid, the winning bidder from the auction can claim ownership or file for eviction.
To avoid home foreclosure, consider options like mortgage term adjustment, reverse mortgages, short refinancing, or arranging a lump-sum payment with your lender. These strategies can help you temporarily adjust your mortgage terms or access funds to keep your home.
If you find yourself unable to prevent foreclosure, you have several options. You can sell the property before foreclosure, either directly or through an investor. Alternatively, you can voluntarily give the property back to the lender in exchange for waived debt, or you can file for bankruptcy to gain some extra time.
Foreclosure can significantly lower your credit score, affect future borrowing opportunities, and potentially result in a deficiency judgment where you owe the difference between the sale price and the mortgage balance. It's essential to consider the long-term financial implications of home foreclosure.
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