How to Prevent Foreclosure
In this Report
- The Foreclosure Process
- What Options Are Available?
The Foreclosure Process
The first thing you need to do is understand the Foreclosure Process, then we can cover your options to prevent foreclosure and save your credit.
What exactly is a Note and a Mortgage... What's the difference?
A Note is your promise to pay the debt and under what terms. A Mortgage secures that promise, using real estate as the collateral. In other words, by signing the Note, you promise to pay the bank back for the money you borrowed to purchase a property. The Mortgage is the document that gives the lender the right to foreclose on your property if you don't repay the lender based on the terms of the Note.
What happens if I am in default on my loan?
If you are even one month late on your payment, the bank has the right to call the entire loan due (accelerate the mortgage). If you skip a month and try sending in one month's payment the next month, the bank will not credit this money to your mortgage until you have sent in enough money to cover what is owed, including late fees.
Once you are in default, the bank will start sending you letters, they will be friendly reminders at first, and then they will start to become more threatening... They will also attempt to call you to encourage you to make the back payments or sometimes to offer you some kind of repayment plan.
Usually after 2-3 months with no results the lender will file foreclosure.
Foreclosure
There are several steps to the Foreclosure process. The first step will be a Notice of Default.
A Notice of Default usually details how late you have been on your payments, how much you owe in principal and interest payments and how much money the mortgage company is requiring to be caught up on your payments, thus making your loan current. The Notice of Default will also have the date, time and place of the Sheriff's Sale.
There are laws in place that the mortgage company follows regarding sending you notices, etc.
If you have received a Notice of Default, DO NOT WAIT!
The longer you wait the fewer your options; the more you stand to lose!
Because this is a very difficult situation for a person to face, many people put off dealing with the problem. Don't let that happen to you.
Sheriff Sale
At the Sheriff's Sale, the lender will open bidding with the amount currently owed to the lender as of the date of sale. If there are no other bidders at the Sheriff's Sale, then the lender will get the property.
Redemption Period
During the Redemption Period, your only option to keep the house is to pay off the mortgage in full. This can only be done by paying cash or getting a new mortgage. [ForeclosureRedemption]
Eviction
If you have remained in the property to the bitter end, the lender, or high bidder at the Sheriff's Sale will have to file an Unlawful Detainer to have all parties evicted from the property.
Don't let this happen to you. If you need alternative housing, you may need to rent an apartment or house. However, most landlords will not rent to anyone that has an eviction within the past 12-24 months. You may be stuck out in the cold, all because you waited till it was too late to arrange housing.
What do I Do?
You have a few options available to you at this point:
- Reinstate the Loan: If the mortgage company hasn't accelerated the loan (the Sheriff's sale has not happened yet), you can prevent foreclosure simply by paying the missed payments, taxes, insurance, attorney fees plus interest.
This is obviously the best option as it allows you to keep your home and prevent the foreclosure. You will have a few late payments on your credit report, but they can be overcome within as little as 6-12 months so long as all your other credit obligations are current.
- Loan Modification: Some lenders will, under the right circumstances, work with you to modify your mortgage. They will require some money upfront, but they may add the rest of your back payments to the mortgage balance and then create a new set of terms. They may adjust the interest rate, maybe even lower it and then reset the length of time to repay the mortgage. The only way to determine if the lender will work with you on a Loan Modification is to ask them. Some will and some won't.
While a loan modification sounds great, only about 14% of the people who attempt a loan modification are successful with the lenders. But if you are one of the few, you will have prevented the foreclosure and you can now start working on getting your credit rating back up there.
- Deed in Lieu: Sometimes you can offer to give the lender the Deed in Lieu of Foreclosure. This generally only works if you only have the one mortgage and there are no other liens on the property. Most lenders however, will not accept a Deed in Lieu of Foreclosure. There are legal reasons why lenders don't typically do this, but it is worth pursuing.
Your credit report will reflect that the loan was satisfied, but it will state, "Deed in Lieu of Foreclosure" on your credit report. While this is not as bad as a foreclosure, it will remain on your credit report for years to come.
- Short Sale: Short Sale is the term used by the banks when they accept less than what is owed in order to help the homeowner sell the property now, rather than taking the property back through the foreclosure process. The Short Sale process only works when selling your property.
If you can sell your house before the Sheriff's Sale and if the lender will accept a Short Sale, you may be able to save your credit. At least you will not have a foreclosure on your record. Within a year or two, with good credit history, you might be able to qualify for a new mortgage and get a new house. With a foreclosure or bankruptcy on your credit report it will take several years with perfect credit afterwards to qualify for a new mortgage.
Short Sales are the most common strategy with the best odds of preventing the foreclosure for most people who find themselves behind in payments. As with any option, there are pros and cons. No matter which route you choice to take, there will be consequences to your credit.
Our goal is to educate you on the foreclosure process and provide you with options. Please feel free to call with questions at anytime. There may be other options as well, but we can't come up with solutions until we can talk confidentially about your situation. We like to think of ourselves as problem solvers, and we are good at creating creative solutions to tough situations. But it is up to you to take the first step.
What Options Are Available?
Not all is lost though; if you know what options are available to you. America has gone through this kind of market correction before, and we have always come out of it stronger than before, despite the governments misguided attempts to fix the market. The government has been pumping money into the market in the form of bailouts and tax credits, and all that has done is to keep companies that were partly responsible for the bubble busting afloat and to prolong the inevitable market correction.
The main challenges to buyers who want to buy your property are twofold. First they either cannot qualify for a mortgage or they don’t have the cash down payment required by the banks and secondly because they do not know that there are other ways of buying properties that do not require bank financing. And even if they did know that there are alternative ways to buy, they don’t know where to learn about them, have the financial knowledge to understand them and the ability to articulate to you, the seller how to go about doing it.
Fortunately for you, we do know how to buy and sell properties without getting a new mortgage from a bank the traditional way and we also know how to work with the lenders if your property is upside down.
If you owe more than your property could sell for quickly in today’s market, we may be able to work with the lenders to negotiate a short sale so that we can buy the property from you at a today’s values and hopefully prevent a foreclosure on your record.
If the sheriff’s sale has already happened, and you are in the redemption period, a short sale may still be possible, but will it benefit you in the long run? That is a 50/50 proposition that we cannot help you determine until we have talked in person. Some people can still benefit from a short sale during the redemption period for several reasons. Second mortgages being one of those benefits because if a property goes to sheriffs sale and the second lender losses out, they still have 6 years to come after you for the balance of the second mortgage, including all lost expenses and interest. In many cases, a short sale can prevent this situation from happening.
Be careful though, you need to make sure you get a satisfaction for that second mortgage, and not just a release. Many realtors and short sale negotiators will negotiate a release of the second mortgage and the homeowner thinks that that means that they are released from the obligation of the second mortgage, which is simply not true. All a release means is that the second mortgage released the mortgage from the property, not the obligation of the note. That is why you need to understand the difference between a note and a mortgage as we described on page 1 of this report, and the difference between a release and a satisfaction.
A satisfaction on the other hand means just what it says, the note has been satisfied. Meaning that you do not owe the second mortgage after the sale is complete and the second lender cannot come back after you for the unpaid balance, because they have satisfied the debt. That is what we negotiate for every time, or we won’t buy your property unless you decide that it makes sense to accept a release and deal with the second later yourself, which we have had a few clients do, but not most.
If it is still before the sheriff’s sale and you are not upside down, there are ways we can buy your property without having to pay off the existing mortgage, allowing us the ability to purchase your property for a fair price and keep your good credit. These alternatives allow you to sell now before a foreclosure becomes eminent and being forced to deal with realtors and buyers who cannot qualify for a new mortgage, come up with the down payment or understand all the alternative ways of buying your property and preventing the foreclosure all together.
What do we do with the property after we have successfully purchased the property from you? Well, not only do we know how to creatively buy properties, we are really good at creating alternative ways for buyers to buy now or rent from us while we work with credit repair specialists and lenders to get the buyers qualified to buy the traditional way, which is what they prefer, because they understand traditional and don’t want to spend the time, energy and effort learning alternative forms of financing for purchasing your property.