Avoiding Foreclosure
The best advice: Don't ignore your situation
Most people who sign a
mortgage don't intend to walk away from it. Still, unforeseen
circumstances -- huge medical bills, lost jobs, divorce or eroding
property values -- can overwhelm even the best-intentioned borrower. A
simple twist of fate can leave you facing a homeowner's worst
nightmare: foreclosure.
Communicate with your lender
Rest
assured, where foreclosure is concerned, you and your lender are on the
same side. Lenders want your money and the interest that comes with it,
not your house. If you seem to be a good risk, the lender will offer to
help keep your mortgage afloat. But be forewarned: If you seem like a
bad risk, the lender may cut its losses by taking steps to foreclose
and evict you as quickly as possible. The key is to contact the
lender before your debt gets the better of you. The sooner your lender
knows of your problem, the more help it can provide.
The foreclosure spiral
The foreclosure spiral begins when your loan payment becomes 16 days
overdue. At that point, your mortgage servicer will try to contact you
to work out a repayment schedule to bring your loan current.
If your first payment
becomes 30 days delinquent and the next month's payment looks doubtful,
collection attempts begin in earnest. If your payments fall 90 days
behind, the servicer will likely refer your mortgage to an attorney or
other entity that will initiate formal foreclosure proceedings.
Here's a timeline of the foreclosure spiral:
Foreclosure timeline
Day 1
Mortgage payment due today, the first of the month. Borrower misses it.
Day 16-30
Late charge assessed on payment. Mortgage servicer starts attempting to make contact to find out what happened.
Day 45-60
Servicer sends "demand" or "breach" letter to the borrower pointing out that terms of the mortgage have been violated. Borrower given 30 days to resolve the situation by paying the delinquent amount.
Day 90-105
Servicer refers loan to foreclosure department. Hires local attorney or other firm to initiate foreclosure proceedings. Depending on the state where
the home is located, the servicer's representative may record a formal
notice of foreclosure at the local courthouse, publish details of the
debt in the local newspaper, attend hearings on the case and make
appropriate court filings.
Day 150-415
House sold at foreclosure sale or auction. Wide time range due to different state requirements. Borrowers in states with
judicial foreclosures, or those in which lenders have to retake
property titles via the court system, can get almost a year to
straighten out their affairs before the sale. Those in nonjudicial
states have as little as two months.
Day 150-415+
After the sale, some states
grant borrowers a "redemption period" in which they can still rebuy the
property if they have the money. Others force consumers out immediately
following the auction.
Ways to avoid foreclosure
Here are some options your lender may offer you if you miss a payment and want to avoid foreclosure:
Repayment plan: If you suffer a
short-term financial setback (expensive car repairs, a medical
emergency), your lender may provide some breathing room by agreeing to
let you pay off your missed payment in two installments over the next
two months.
Loan modification: Mortgage servicers
can adjust the terms of your loan -- most often by lengthening the
amortization schedule, lowering the interest rate or rolling the
delinquent amount into the loan and reamortizing the new balance -- to
help you bring the loan current.
Short sale: The lender allows you to
sell the house for less than the outstanding loan amount, takes the
proceeds and forgives any remaining debt.
Short refinance: The lender forgives some of your debt and refinances the rest into a new loan.
Refinance with a "hard money" loan: You won't like the high rates
and fees of a hard money loan -- one from a private lender -- but it
may buy you time to sell your home and avoid foreclosure.