According to the FDIC, one in every 200 homes will be sold in foreclosure. While many have never personally dealt with a foreclosure, every homeowner should understand what a foreclosure entails and how to avoid it. Luckily, bank repossessions have dropped in 2020, down 44% from last year.
Get to know about the foreclosure process, how one gets to that point, and how to avoid foreclosure altogether.
What Is Foreclosure?
First, it’s essential to know what foreclosure means and how a homeowner even gets there. Foreclosure means your mortgage lender can repossess your home. The lender may begin the foreclosure process after an extended period of nonpayment. Every situation is different, and your mortgage agreement will set out the amount of time you have before you can’t avoid foreclosure.
Every state handles foreclosures differently. It is essential to understand how your state deals with the foreclosure process.
The Foreclosure Process
The foreclosure process may begin anywhere from three to six months after you miss your first payment unless you attempt to catch up. However, this entirely depends on your state, the mortgage lender, and your particular mortgage agreement.
The foreclosure process typically goes as follows:
- The homeowner will receive a notice of default from their lender;
- The homeowner is given a limited amount of time to catch up on missed payments, including any interest or penalties;
- If the homeowner does not attempt to catch up on payments in the allotted time, they will receive a formal foreclosure sale notice providing the actual date of the foreclosure; and
- The home will be sold in a foreclosure sale.
While this is the usual order of events, it is different in every state. After the home’s foreclosure sale, some states have a redemption period, allowing the homeowner a short period of time to reclaim their property.
Common Reasons for Foreclosure
While the most common cause of foreclosure is nonpayment, there are various reasons why parents get to this point and can’t avoid foreclosure.
Unemployment
At any given time, one or both heads of household can lose their jobs. Losing employment can bring with it numerous stresses and frustrations, one of the biggest ones being financial strain. If a person cannot find new employment rather quickly, it can become easy to fall behind on mortgage payments.
Illness
In 2007, 13% of foreclosures were due to illness. In the most unfortunate circumstances, illness can cause a person to miss work or lose their income altogether. Aside from less income, mounting medical bills can add to the financial burden.
Divorce
In addition to being expensive, divorces can bring about foreclosures for many reasons, including:
- Numerous distractions, causing missed payments;
- Disagreements over who will pay the mortgage; and
- Terms of the divorce appointing one spouse to take over mortgage payments, and they are unable to.
Divorces often bring stress, frustration, and serious legal battles. It comes as no surprise that divorces can lead to foreclosures.
Tips to Prevent Foreclosure
In some cases, you can avoid foreclosure. Below are some tips to prevent the foreclosure of your property.
Catch Up on Missed Payments
While this may seem like the most obvious tip, lenders will often avoid foreclosure and that whole process if they see a homeowner is trying to catch up on missed payments. Stay in communication with your lender and work with them. Try not to wait until you are six months behind, but rather, try to start catching up after your first missed payment.
Know Your Options
Many times, a homeowner will have options to help them avoid foreclosure. These include:
- Loan modification, and
- Forbearance/repayment plans.
Loan modifications will alter your loan agreement. Your lender may be able to reduce your interest rate or extend the time you have to repay the loan, allowing for lower payments.
Lenders may offer a forbearance period if you cannot pay your mortgage for a short period of time. This allows you to stop making payments for a while and get caught up with payments after the forbearance period has ended.
The sooner you contact your lender, the better.
Understand Your Rights
You must review your mortgage documents to fully understand your specific agreement and everything your lender may do if you default on your mortgage. Foreclosure law firms and legal service organizations, such as Vantage Group Legal in Chicago, can provide much-needed legal advice and help you understand your rights.
Know What to Expect and Stay Prepared
You can avoid foreclosure. Your first line of defense is knowing and understanding the details of your mortgage agreement. Should you find yourself in an unfortunate situation, don’t ignore the problem. Stay in contact with your lender and exercise your rights.
